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Tesco sells mortgage book

The group offloaded its mortgage book for around £3.8bn
September 4, 2019

Tesco (TSCO) has announced the sale of its mortgage portfolio to Lloyds Banking Group (LLOY) for around £3.8bn, as the supermarket attempts to reduce its range of banking products amid intensifying market competition. 

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The supermarket announced it would stop issuing new mortgages and seek a buyer for its portfolio last May. Management instead intends to focus “on serving a broader range of customers in more specific areas”. In practice, this means it will provide retail banking and insurance products aimed at the existing retail customer base.

Tesco's exit from mortgage lending move comes amid dogged competition within the UK market. At its half-year results, CYBG (CYBG) spoke of both above-average growth and a need to “proactively reduce” its weighting in some mortgage lines if it is to maintain margins. 

The interest on the average two-year 95 per cent loan-to-value mortgage declined from 3.95 to 3.23 per cent in the year to August, according to financial data provider moneyfacts.co.uk, suggesting providers have been cutting in riskier segments to get in front of first-time buyers and take market share. 

Despite this, some large lenders are doubling down on the market. Aside from Lloyds, HSBC has committed to lend an extra £35bn to UK home buyers, while RBS increased its gross new mortgage lending by £14.3bn in the first half of 2019.