‘Cheap’ government funds help Tesco start mortgage price war

Chief executive Benny Higgins unveiled what he called “market-leading rates” after announcing that Tesco was accessing the Bank of England’s Funding For Lending Scheme. Edinburgh-based Tesco Bank is now offering two-year fixed mortgages with rates starting at 1.99 per cent.

Higgins said: “We welcome the Funding for Lending Scheme, and are delighted to be able to pass on the benefit to our customers.

“We are committed to responsible lending and hope to enable our customers to borrow a further £1 billion, over the next year, at affordable rates.”

Rates on other products are also lower, he said, adding that the bank will be launching a cash ISA before the end of the year.

He denied that the reason for cutting mortgage rates was in response to criticism that they were not sufficiently competitive when first launched in August. “Frankly, it was not valid criticism,” he said. He also rejected claims that the FFL would mean lower rates for savers. “Our position is to give savers good value,” he said.

His comments coincide with new figures showing mortgage lending was “disappointingly lacklustre” in September, sliding by 10 per cent compared with the previous month when borrowing for home buyers reached a two-year high.

The Council of Mortgage Lenders (CML) said lending totalled £11.6 billion last month, which is also 15 per cent lower than a year ago, despite a recent boost to the availability of mortgage deals.

The £80 billion FFL is expected to kick-start the flow of credit and has resulted in an increase in the choice of mortgages.

But the CML said there have been recent signs of demand softening and last month’s fall appears to reflect a drop off in housing market activity. Lenders have also toughened their borrowing criteria in recent months and much of the increase in mortgage availability so far has been concentrated on people with deposits of 20 per cent or more.