Sainsbury's is also cutting supermarket and Argos branches as part of a plan to save £500 million
Sainsbury’s is pulling out of the mortgage market after issuing a warning to investors that profits are set to dip.
The supermarket giant announced today that it will no longer sell mortgages after reporting that profits for the first six months to 21 September will be down £50 million compared to last year.
The company blamed the “combined impacts of the phasing of cost savings, unseasonal weather against a strong comparative period last year and higher marketing costs”.
The news comes after reports that the supermarket giant was looking to offload its mortgage loan book for £1.3 billion.
Regarding the sale of the loan book, a Sainsbury’s spokesperson told Moneywise that the bank was “looking at options”.
Sainsbury’s also announced that it is closing down 50 stores as well as between 60 to 70 Argos branches over the next five years.
It will open 80 new Argos branches in Sainsbury’s stores as well as 10 new supermarkets and 110 convenience stores.
The supermarket says the cuts will save it £500 million over the next five years.
What will happen to your mortgage?
Sainsbury’s says that there will be no changes to for customers as a result of the announcement and they can carry on as normal. New customers who have already applied will have their mortgages honoured.
It is possible that Sainsbury’s Bank customers with a mortgage could be switched to another lender in the future.
If this happens 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.
Sainsbury’s has become the latest supermarket to ditch mortgage sales as part of a plan to become more profitable.
Earlier this year, Tesco Bank said it was exiting the UK mortgage market, blaming “challenging” market conditions.
Like other supermarket banks, Sainsbury’s has found it increasingly difficult to compete in the mortgage market.
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 competition, while low interest rates have hammered loan margins.
Andrew Montlake, managing director of mortgage broker Coreco, says: “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.
“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.”