Tesco Bank pulls out of "challenging" mortgage market

21 May 2019

Tesco Bank is exiting the highly competitive UK mortgage market, blaming “challenging” market conditions.

The bank says it will stop lending on new mortgages and is “actively exploring” options to sell its £3.7 billion mortgage portfolio.

The bank first started offering mortgages in 2012 and has more than 23,000 customers.

Any sale would include the complete transfer of related balances and ongoing administration of relevant accounts.

Gerry Mallon, chief executive Tesco Bank, says: “In recent years, challenging market conditions have limited profitable growth opportunities.  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.”

With growing competition and a subdued housing market, mortgage lenders are seeing their profits squeezed in the battle for customers.

A raft of new challenger banks have also increased the supply of mortgages, while interest rate uncertainty has prevented banks increasing their loan margins.

What does this mean for your mortgage?

Tesco says there will be no changes to customer accounts as a result of the announcement and that borrowers do not need to take any action.

It is possible that Tesco Bank customers with a mortgage could be switched to another lender in the future.

In the event of a sale the terms and conditions of your original loan are protected by law and can’t be changed, including your interest rate and repayment period.

If you have a fixed rate mortgage, monthly payments will continue to be the same. With a variable rate mortgage, payments will be subject to change based on the terms of the original loan.

If the sale does go ahead Tesco Bank will notify customers about the effect it will have on their accounts.

Andrew Montlake, director at mortgage broker Coreco, says: “It’s a small blow to consumer choice but thankfully there are lenders aplenty that are financially strong and keen to get money into the market. It is difficult for challenger banks to maintain this level of competitiveness for so long and to make inroads into the market."

He adds: “Lenders have to maintain a margin but at the same time they also need to maintain a responsible level of underwriting and risk. The positive is that this is not a knee-jerk reaction but appears a reasoned and strategic withdrawal from the market.”

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