Sainsbury’s Pulls Out of Mortgage Market
Sainsbury’s has announced that it will no longer be providing mortgage loans, following rival supermarket Tesco out of the mortgage market.
The supermarket giant, which set up its banking arm just over two decades ago, will no longer provide mortgages to customers after reporting falling profits. According to Sainsbury’s, its profits from the first six months of the year to September 21 were down by £50 million compared to last year.
Responding to challenging market conditions, Sainsbury’s has also announced it will be closing 50 stores across the country, plus up to 70 Argos stores, which the supermarket owns. Sainsbury’s said it could save up to £500 million over the next five years from the cuts.
Both Sainsbury’s and Tesco began selling mortgages in an attempt to challenge the major banks in the UK. However, both challenger banks have found it increasingly difficult to gain a foothold in the mortgage market due to increasing competition and a stagnant housing market. Tesco Bank announced in the summer that it would be selling its mortgage book – of which it has around 23,000 customers – to Lloyds Banking Group.
“The level of competition in the market is causing a major rethink among lenders for whom mortgages are a bolt-on rather than their core business,” said Andrew Mortlake, managing director of mortgage broker Coreco. “Just as with Tesco, for Sainsbury’s the margins are no longer there and its mortgage division was almost certainly struggling to wash its own face.
“We don’t expect this to be the last withdrawal from the mortgage market. It’s pretty brutal out there right now and more departures are likely. Lower home purchase levels are rubbing salt in the wound of the exceptionally low rate environment. Lenders are experiencing a double whammy of low rates, hammering margins, and relatively low transaction levels, hitting volumes. For peripheral mortgage players it’s a bridge too far, all the more so with the potential impact of Brexit yet to be felt.”
Sainsbury’s has reassured its customers, however, that there’s no need to panic and they will see no changes to their mortgage following the announcement. All mortgages will be honoured, but customers may see their mortgage switched to another provider in the near future. However, customers’ mortgages are protected by law and thus won’t change, including the interest rates, monthly instalments and loan term.