Tesco Bank has announced its departure from the mortgage market, along with its intention to sell its existing £3.7bn portfolio, which could affect more than 23,000 customers.
The bank is actively exploring options to sell its existing portfolio and has halted new lending, with chief executive Gerry Mallon blaming recent challenging market conditions, stating that the move was part of a strategic decision to “focus on serving a broader range of customers in more specific areas”.
“Our priority in any sale is to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well,” he said.
However, the bank has wanted that there is no certainty of a transaction, or of the terms which may be attached to it.
Tesco Bank has been servicing the mortgage market since 2012 and currently serves in excess of 23,000 customers. However, the Press Association revealed earlier this month that Tesco Bank stopped offering travel insurance.
Further to this, the lender is expected to slash the interest rate on its current account from 3 per cent to 1 per cent next month.
Commenting on the move, Coreco director Andrew Montlake said: “With transaction levels painfully low, the mortgage market has never been as competitive as it is right now. Margins are being squeezed as rates race to the bottom in a bid for market share and Tesco appear to be saying that the numbers no longer stack up for them.
“Diminished margins against a backdrop of extreme political and economic uncertainty have resulted in Tesco calling it a day.”
Montlake added that the announcement is a “small blow to consumer choice”, but highlighted 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. 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,” he concluded.
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