Tesco launches into mortgage market

Retailer’s arrival coincides with a mortgage price war on the high street that has pushed some rates down to record levels

Tesco on Saturday drove its shopping trolley into the mortgage market with the launch of a range of home loans. It said the move, which comes nearly three years after it first outlined plans to launch a full-service retail bank, was a major milestone towards its goal.

From Monday Tesco’s banking arm will offer a range of fixed-rate and tracker mortgages, available to homebuyers and those remortgaging. The deals will not be offered in stores but online or by phone from Tesco Bank’s UK-based customer service team. Deals will not initially be offered through mortgage brokers.

Tesco first outlined plans to build a full-service bank in autumn 2009. The initial plan was to launch a chequebook account in 2010 and later add small business banking. It passed up the chance to buy the Northern Rock “good bank” as a quick way into the home loan market, saying it did not need the brand or branch network. Some brokers and commentators were disappointed that the launch lacked any market-leading products, particularly as the company’s arrival in the market has coincided with a mortgage price war on the high street that has pushed some rates down to record low levels.

Tesco’s rates start at 3.19% for a two-year fixed rate where the maximum loan is 70% of the property’s value, with a £995 fee. Its cheapest five-year fix is 3.89%.

Other lenders have recently launched deals with lower headline rates: West Bromwich building society has a two-year fix at 2.95% for those borrowing up to 75% of the property’s value. NatWest offers a five-year fix, also at 2.95%, for people borrowing up to 60% of their home’s value. These low rates typically have high product fees – £2,495 in the case of the NatWest deal.

Sylvia Waycot, of financial data website Moneyfacts, said: “It is disappointing that despite having successful cards and loans to its credit, Tesco Bank, on entering the mortgage sector, has not launched any market-leading deals. Its current proposition of fixed and tracker mortgages can be beaten by what is currently on the high street.”

First-time buyers are likely to be disappointed, too, as only those borrowers who can manage a deposit of at least 20% will be able to take out a Tesco home loan.

Benny Higgins, Tesco Bank chief executive, denied suggestions the launch had been delayed, saying there had been no plans to issue mortgages until the bank had completed the systems work required – something it achieved in May.

Current accounts – the badge of a full service bank – will not be introduced until the “tail end of next year”, he said, once banks have made it easier to switch accounts, as recommended by the Independent Commission on Banking.

ISAs could come later this year, while Tesco Bank will also seek its own credit rating to allow it to borrow directly on the financial markets to fuel its growth.

Philip Clarke, Tesco’s chief executive, said customers wanted choice in banking “from a brand they know and trust to deal with them fairly”.

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