Tesco Bank has announced that it is stopping new mortgages and is planning to offload its existing £3.7 billion mortgage portfolio amid “challenging market conditions”.
Commenting on the move, the bank’s chief executive, Gerry Mallon, said the mortgage market offers “limited profitable growth opportunities” for the organisation.
The bank has more than 23,000 mortgage customers on its books, which it plans to sell to another provider.
The sale of its mortgage portfolio will include the transfer of balances and the administration of accounts.
According to reports, however, the move will have “no impact” on existing mortgage customers.
Expanding on the bank’s decision to discontinue new mortgages, Mr Mallon said: “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.
“Our priority in any sale, is to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well.”
Tesco Bank added that its customers will be notified once a sale has gone ahead, with more details on how the move would affect their mortgage.
Experts suggest that a “sluggish” housing market and increased regulation, as well as rock bottom interest rates, have ignited fierce competition in the mortgage market. It means that lenders must sell more mortgages to cover declining profits, but with property sales dipping, lenders, such as Tesco Bank, are considering pulling out of the market altogether.
Rufus Ballaster (Senior Partner of Carter Lemon Camerons LLP and a Secured Lending specialist lawyer) commented: “We must expect substantial lenders to monitor, on a regular basis, what they do and what their risk and reward is from various banking activity. Such analysis will lead some lenders to expand their mortgage offering and others to contract or discontinue it. I would predict a healthy market for the ‘loan book’ Tesco Bank is to sell, unless it mispriced the mortgage loans in the first place.”