Tesco Bank mortgage market entrance gets a cool welcome

TESCO Bank’s long-awaited entrance into the mortgage market will be undermined by a lack of market-leading deals and an absence of options for first-time buyers.

That’s the verdict from mortgage experts as the supermarket’s retail banking arm today announces that on its first home loans will be available from 
Monday.

The new range features fixed rate and tracker mortgages over periods of two, three and five years. Charges have been kept low as the supermarket giant bids to shake up a market still dominated by high street banks and building societies.

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Borrowers will pay a flat booking fee of £195 and get the option of paying a product fee of £800 in return for lower repayment rates. However, it will only lend to people with deposits of 20 per cent or more, effectively freezing first-time
buyers out of its offering.

The cheapest deal is a 3.19 per cent two-year fixed rate on a loan-to-value (LTV) of 70 per cent (where the borrower has equity or a deposit of 30 per cent). That rises to 3.59 per cent at 75 per cent LTV and 3.99 per cent where borrowers have 20 per cent to put down. Over five years the lowest rate is 3.89 per cent, while the trackers will start at the Bank of England base rate plus 2.69 per cent.

Borrowers will have the ability to overpay their mortgage by up to 20 per cent of the outstanding balance, without incurring early repayment charges, while Tesco Clubcard holders will collect one point for every £4 on their monthly mortgage repayments.

But experts warn that Tesco has its work cut out in an increasingly competitive mortgage market. HSBC triggered a new rate war last month by launching the cheapest five-year mortgage on record, only for Royal Bank of Scotland to unveil a lower rate earlier this week. The likes of Barclays, Nationwide and Santander have also slashed their best buy deals in recent weeks.

And while Tesco enters the market with competitive rates, none of them threaten the top of the best buy tables, acc­ording to Sylvia Waycot at Moneyfacts.

“It is disappointing that despite having successful cards and loans to its credit, Tesco Bank has not launched any market leading deals. Its current proposition of fixed and tracker mortgages can be beaten by what is currently on the high street,” she said.

Lorraine O’Shea, director of Honour Financial Planning in Edinburgh, said she was “underwhelmed” by the new Tesco offering. “I had hoped it might go after the likes of HSBC’s share of the direct market in terms of low LTV, low rate deals. Alternatively if Tesco were trying to compete with the likes of Nationwide, the Woolwich or Abbey, it would have needed to be far sharper at the 75 per cent LTV end of the market. It’s doing neither.”

Nor will it serve the first-time buyers that the housing market so desperately needs, she added. “The only unique feature is the added Clubcard points, which is a good marketing ploy. But in reality it’s only a small bonus and I can’t imagine why any savvy borrower would pay a higher interest rate and increase their monthly mortgage payment for this small benefit.”

Others are more impressed, however. Alison Mitchell, mortgage expert at IFA Robson Macintosh, said: “The deals will stand them in good stead in this ever- competitive mortgage market. Free legals and valuation costs always help when homeowners are looking at switching their mortgage.”