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Tesco Bank quits the mortgage market: what does this mean for your loan?

The Telegraph logo The Telegraph 21/05/2019 Adam Williams
© Getty

Tesco Bank has closed its mortgage business and is looking to sell its loan book, but what does this mean for its 23,000 existing customers?

The retail giant launched into the mortgage market to much fanfare in 2012 and grew quickly. Today it has total outstanding mortgage balances of £3.7bn.

However, the bank has announced that it has ceased all new mortgage lending and is looking to sell its existing portfolio. This may include transferring all accounts and balances to a rival provider.

Gerry Mallon of Tesco Bank blamed “challenging market conditions” for the withdrawal from the market. The bank axed its travel insurance business the end of 2018.

It is the latest blow to the mortgage market. Telegraph Money has reported on several lenders withdrawing – Tesco is by far the biggest to do so.

Others are reining in their business. Last week CYBG, the group which owns Clydesdale Bank, Virgin Money and Yorkshire Bank, announced that it was looking to reduce its own lending, also citing difficult trading conditions.

Gallery: 15 of the worst mistakes made by first-time homebuyers (Espresso)

15 of the worst mistakes made by first-time homebuyers: Buying a home is often the largest single purchase of our lives. The process can be particularly harrowing for first-time buyers, who may not spend enough time looking into their mortgage options, or unwittingly sabotage their efforts to acquire a mortgage, or let emotions rather than reason rule when shopping, or forget about the other associated costs in a home sale. Here are some of the main minefields you should avoid if you’re about to look for a starter home.

Jonathan Harris, of mortgage broker Anderson Harris, said: “Fewer lenders is not ideal for consumers as it means less choice and that can mean higher rates as there is less competition, which tends to keep rates down."

What will this mean for customers? Telegraph Money answers the key questions.

I am an existing customer, what does this mean for my mortgage?

There will be no immediate changes for existing customers. Tesco said it would write to borrowers when any sale is completed to explain what it means for their loan.

Tesco did not disclose which third parties it had been in discussions with, but said it would try to ensure any sale was to a “purchaser who will continue to serve our customers well”.

Will I be able to change my current loan?

a sign in front of a building: Tesco said challenging market conditions were to blame for its withdrawal - AFP© BEN STANSALL/AFP Tesco said challenging market conditions were to blame for its withdrawal - AFP Yes, Tesco will continue to provide a full service to existing customers, including contract variations, porting and additional borrowing.

Mr Harris said: “Existing borrowers needn’t panic as their mortgage contracts will be honoured by the lender who is buying them, with terms and conditions unchanged.

"However, it can be a concern if that lender is not offering competitive deals when the borrower comes to the end of their fixed or discounted rate."

Will my mortgage definitely be sold?

Tesco said there is no guarantee that its mortgage book will be sold at all. If any sale does take place it may not be to a single provider. 

"If a transaction is confirmed, Tesco Bank will notify existing customers to explain what the sale means for their account," the bank said.

Seema Malhotra MP, co-chair of the all-Parliamentary party group on mortgage prisoners said: "We need to introduce proper safeguards and ensure that mortgage customers are not sold on to vulture funds and inactive lenders. I hope Tesco bank will commit to only selling its mortgage customers to a fully regulated, active lender which will offer its customers fixed rates and new deals."  

What happens if I am currently applying for a Tesco mortgage?

All customer applications must have received an offer in principle and have paid a product fee by Friday 24 May, and a formal offer by Friday 14 June 2019, to go ahead.

Will other lenders follow suit?

© Getty

Several smaller lenders have withdrawn from the market but Tesco is by far the biggest to do so. Mr Harris said: “Although market conditions are tough we don’t expect other lenders to follow suit. The majority have plenty of money that they are keen to lend and continue to offer competitive rates.”

How can I contact Tesco?

Although there will be no immediate change to accounts, customers can contact the bank on 0345 051 8461.

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