Tesco Bank's 23,000 mortgage customers will transfer to Lloyds-owned Halifax in a deal expected to complete next year
Tesco Bank has sold its mortgage book to Lloyds Banking Group for £3.8 billion, helping to consolidate the high street bank's position as Britain’s biggest lender.
The move that will see 23,000 customers switch to the Lloyds-owned business Halifax.
The bank announced it was pulling out of the mortgage market in May due to challenging market conditions.
Tesco Bank first started offering mortgages in 2012 and has more than 23,000 customers.
The sale of the portfolio is expected to complete by the end of March next year.
Gerry Mallon, Tesco Bank chief executive, says: "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.
“As a result, we made the decision to move away from our mortgage offering. Our priority throughout has been to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well.”
Growing competition and a subdued housing market means mortgage lenders are seeing their profits squeezed in the battle for customers.
Meanwhile, the ongoing mortgage price war has seen lenders slash rates, which has dented their returns.
A raft of new challenger banks has also increased the supply of mortgages, while interest rate uncertainty has prevented banks increasing their loan margins.
What does this mean for your mortgage?
If you have a mortgage with Tesco Bank the terms and conditions of your original loan are protected by law and can’t be changed. This includes your interest rate and repayment period.
Mortgage customers will remain on their current terms while they are on their existing deal. As these deals end, customers will be able to move to Halifax terms if they wish.
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.
Tesco Bank says will it continue to provide the full service to existing customers until mortgages are transferred to Halifax on 27 September. This means you can still request changes, including term amendments, product transfers, additional borrowing, porting, and payment holidays.
Customers do not need to do anything right now and will be notified when mortgages will transfer over.
Mortgage applications submitted before 24 May will continue to be processed but must be completed by 14 December.
Customers can claim Clubcard points until the mortgages transfer over on 27 September. How much they will receive depends on their individual circumstances. Tesco says it will "gift" borrowers extra Clubcard points to thank them for being customers.
Andrew Montlake, director at mortgage broker Coreco, says: “This is good news for borrowers with Tesco who are being moved to a lender with a good track record of looking after their customers.
“Rather than being sold on to an unregulated entity like some others who are now considered mortgage prisoners, these borrowers can now rest easy that there will at least be options available to them at the end of their current mortgage product.”