Philip Clarke, chief executive of Tesco Bank said that customers want choice in banking from a brand “they know and trust” to deal with them fairly.
The launch will see Tesco Bank lend between 70% to 80% LTV on its current range of 2, 3 and 5-year fixed rates as well as 2-year trackers for both homebuyers and remortgagors.
It has also introduced a new feature where Tesco Clubcard holders will be rewarded with Clubcard points as they repay their mortgage.
Below, the industry gives us their thoughts on the long-awaited launch.
Lea Karasavvas, director of Prolific mortgage finance:
Tesco’s launch into the mortgage market is one that should be welcomed as every new lender brings with it the capability for the consumer to benefit from more competition.
Their range seems to emulate their ethos of value, offering the client slightly more flexibility in the ability to overpay 20% rather than the standard 10% that is often the case.
Whilst the rates are not market leading, it is a steady product mix they are offering and I would expect them to get stronger and stronger. Competition has definitely intensified in the mortgage market of late, and the launch of Tesco Bank mortgages will simply add to this.
Tesco may choose to go down the direct-only route, however the intermediary market and consumers as a whole should benefit as all lenders will need to up their game to ensure they maintain the market share they had targeted at the start of the year.
David Hollingworth, head of communications at London & Country:
The addition of Clubcard points for mortgage payments will help highlight the new products to Tesco’s existing customer base. The rates are reasonably priced if not market leading.
The pick of the bunch is the two-year fixed rate at 3.19% to 70% LTV with a £995 fee, offering a better loan to value than many of the cheaper, sub 3% competition. However West Bromwich Building Society offers a two-year fix at 2.95% to 75% LTV with a £999 fee (at that LTV Tesco’s rate lifts to 3.59%). The five-year fix at 3.89% to 70% can’t keep pace with Nationwide which offers 3.39% to 70% with a £999 fee.
Although Tesco has not gone after the very low LTV market nor does its range bring anything to those with only a small deposit, offering a maximum of 80% of the purchase price. We also don’t know how flexible the lending criteria will be, which remains key in finding the right deal in a tight market.
Overall though the accent should be on the significance of a new player in the mortgage market that ultimately will hopefully offer something that established lenders will need to compete with.
Terry McCutcheon, group chief executive of Finance Planning Group:
Our view as independent mortgage brokers is that it will always benefit the consumer when new brands come into the market, as it helps focus some of the larger existing lenders on maintaining competitive rates.
While the Tesco product range is not world-beating in terms of rates, they do offer their customers the added benefits of ‘club card points’, which may appeal to some shoppers.
It seems that Tesco’s marketing is well-thought out and is focussed on attracting existing customers, who already shop at Tesco by adding another product to their extensive range.
John Heron, managing director of Paragon Mortgages:
The very best of luck to them. Anything that adds liquidity can only be good for the market. However, my overriding concern is the absence of solutions for first-time buyers and those on irregular incomes. But the challenge remains for all lenders in this economy.
Ray Boulger, senior technical manager, John Charcol:
Tesco’s proposition is to provide information only. Most people want advice when choosing a mortgage, recognising the many pitfalls in today’s market, and the FSA’s draft Mortgage Market Review significantly extends the circumstances in which advice will have to be offered in the future.
If Tesco subsequently beefs up its rates, which it will have to do if it wants serious volumes, limiting availability to online and phone applications will severely limit its potential market. For something as complicated as choosing the right mortgage most borrowers prefer face to face contact, as well as wanting advice.
The alternative to offering competitive rates it to offer something else valuable, such as flexible underwriting and/or great service, combined with reasonable rates. It will be interesting to see what Tesco can deliver in both these areas. Will it be another “computer says no” lender?
