Tesco Bank Leaves Mortgage Market

Tesco Bank is leaving the mortgage market and is planning to sell its loan book, due to challenging market conditions.

The bank, part of the largest supermarket in the UK, started offering mortgages in 2012. It currently has over 23,000 mortgage customers, to whom it has lent around £3.7 billion. The bank is now seeking a new mortgage provider that it can sell its existing portfolio to.

“In recent years, challenging market conditions have limited profitable growth opportunities,” said Gerry Mallon, chief executive of Tesco Bank. “Our focus is on how we best serve Tesco customers and align our resources effectively to their needs while ensuring that our offer remains sustainable in the long term.

“To that end, we have made the strategic decision to focus on serving a broader range of customers in more specific areas, which means moving away from our mortgage offer. We have therefore chosen to cease lending to new customers and announce our intention to explore a sale of our portfolio. Our priority in any sale, is to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well.”

The UK mortgage market has been subdued in recent months, and there had been signs before that Tesco Bank was looking to revive the mortgage arm of its business. In February, the bank tried to attract new customers by cutting its mortgage fees and offering cashback deals among other incentives. However, in April it was named as the worst challenger bank from a customer’s point of view in a report by data firm Brands Eye.

The report analysed around 120,000 tweets from customers of six challenger banks, recording both positive and negative sentiment towards their respective bank. 6.3% of Tesco Bank customers threatened to leave the bank, and it received a net sentiment score of -40%. Metro Bank was named as the second worst challenger bank with a net sentiment score of -17.1%, while Monzo, with a net sentiment score of +31.6%, was revealed as the customers’ favourite.

But Tesco Bank is not the only mortgage lender that has been struggling to maintain profits in recent months in the face of increased competition and a sluggish housing market with low interest rates. Tesco Bank is one of six banks to stop offering mortgages to new customers since December 2018. Both AA Mortgages and Magellan Homeloans stopped lending new mortgages in March due to competitive pressure, while buy-to-let specialist mortgage lenders Fleet Mortgages, Secure Trust Bank and Amicus closed their mortgages businesses in December and January.

“There are over 140 active lenders in the market today but the top six account for around 73% of total residential lending in the UK,” said Lynda Blackwell, former mortgage sector manager at the Financial Conduct Authority. “That leaves 136-plus active lenders chasing a 27% share. Those lenders can’t possibly compete with the top six, with their massive funding advantage and dominant position in the market. We’re starting to see the impact of all of this with firms halting lending and even exiting the market. Something has to give.”