Thousands of Tesco Bank customers could find their mortgage sold to a third party after the bank confirmed it has ceased new lending and will look to sell its mortgage book.
The bank, which has lent around £3.7billion to over 23,000 mortgage holders, blamed challenging market conditions as it closed its doors to new lending.
It now says it will actively look for a buyer for its existing mortgage portfolio.
Gerry Mallon, chief executive of Tesco Bank, said: ‘In recent years, challenging market conditions have limited profitable growth opportunities.
‘Our focus is on how we best serve Tesco customers and align our resources effectively to their needs while ensuring that our offer remains sustainable in the long term.
The bank said it is looking to ‘serve a broader range of customers’ by selling its mortgage book
‘To that end, we have made the strategic decision to focus on serving a broader range of customers in more specific areas, which means moving away from our mortgage offer.
‘We have therefore chosen to cease lending to new customers and announce our intention to explore a sale of our portfolio.’
The lender noted that a sale is not guaranteed and confirmed that it will update existing customers as and when new information comes to light.
‘Our priority in any sale is to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well,’ Mallon said.
He added that there are no changes to customer accounts as a result of the announcement and customers do not need to take any action.
More lenders are shutting up shop
Tesco Bank is the sixth lender since December to close its doors to new business as increased competition in the market has squeezed profits in the sector.
The bank follows
In a statement, the specialist mortgage lender said increasingly expensive funding costs combined with the competitive pressure to keep mortgage rates low meant it could no longer justify making new loans.
There has been a small exodus of mortgage lenders since December as competition continues
Fleet Mortgages, a specialist buy-to-let lender, was forced to close its doors in January after failing to secure finance from investors to fund any more new loans – it has since secured a new funding line and commenced lending again however.
The previous day, Secure Trust Bank confirmed it would cease offering new mortgages immediately due to ‘competition intensifying, as evidenced by increasing loan-to-value metrics and lower new lending margins’.
In mid-December, Amicus – a specialist lender offering short-term mortgages to property developers and landlords – was forced to stop all new lending and the following month confirmed the business had been put into administration.
This small exodus of lenders since December has led to concern these could be the early warning signs that
Writing in an industry blog, Lynda Blackwell, the former mortgage sector manager at the Financial Conduct Authority and now an independent consultant, said: ‘There are over 140 active lenders in the market today but the top six account for around 73 per cent of total residential lending in the UK.
‘That leaves 136-plus active lenders chasing a 27 per cent share. Those lenders can’t possibly compete with the top six, with their massive funding advantage and dominant position in the market.
‘We’re starting to see the impact of all of this with firms halting lending and even exiting the market. Something has to give.’
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