Tesco enters mortgage market
The highly-anticipated launch of the direct-only range, offered at a 70% to 80% Loan to Value, includes a three and five-year fixed rate mortgage, and a two-year base rate tracker.
Rates start at 3.19% for a two-year fix offered to a maximum 70% and all loans will come with a flat booking fee of £195 and a £800 or £0 product fee. The Standard Variable Rate is 4.24% and the maximum loan amount will be £500,000.
The bank confirmed it has no plans to sell through brokers and the non-advised mortgages will be offered online and via a call-centre six days a week.
The purchase and remortgage products offer customers Club card points to a ratio of one point for every £4 spent, so on a £750 monthly repayment, Tesco will return £22 a year in Club card points, or £88 in its Club card Voucher Exchange.
The Exchange converts £5 of clubcard points into a £20 discount voucher to be spent in a Tesco store, or at participating retailers including Pizza Express, Strada, Virgin Atlantic Flying Club and Legoland.
A spokesman said: “Clubcard points were introduced as a thank you to customers for shopping at Tesco and we’re not suggesting customers would ever buy a mortgage because of the points.”
Benny Higgins, chief executive of Tesco Bank, said: “Entering the mortgage market is a significant step in broadening the products we offer to Tesco customers.”
The launch products offer overpayments of up to 20%, a switch and fix facility, two payment holidays a year, free legals and a valuation for remortgages.
John Heron, managing director Paragon mortgages, said: “The very best of luck to them. Anything that adds liquidity can only be good for the market.
“My overriding concern is the absence of solutions for first-time buyers and those on irregular incomes. But this challenge remains for all lenders in this economy.”
Ray Boulger at John Charcol confirmed the rates are about 0.50% behind market best buys, following frantic rate cutting in recent weeks, but added: “This is sensible launch pricing and will allow Tesco to test out its systems.”
He added Tesco’s aggressive approach to every sector it enters bodes well and suggests that in time, to achieve volume, it will have to turn to the broker market.
Ian Gray, mortgage manager at Largemortgageloans.com, said he is keen to hear more on Tesco’s interest-only criteria.
“People would happily pay for an interest-only product offered at over 50% LTV. The big question is also what will Tesco’s underwriting policy be, so, what unique selling point will its underwriting approach bring? That would be nice to know.”
Andrew Hagger of Moneynet welcomed Tesco Bank’s entry into the mortgage market and said: “The combined mortgage package of competitive rates, flexible product features plus the ability to earn rewards is likely to appeal, particularly to the millions of loyal Tesco Clubcard customers.”
For the year ending February 2012, Tesco Bank, which opened in 1997, made a base line profit of £203m – up 29% from the year before. It has 6.5m customer accounts.