Tesco Bank can’t guarantee customers’ home loans will be sold to an active lender, as MPs express fears over ‘mortgage prisoners’
- 23,000 mortgage customers could see their accounts sold following closure
- Members of Parliament urge bank to only sell mortgage book to an active lender
- Bank says it will look for a purchaser ‘who will serve our customers well’
Tesco Bank has refused to guarantee that its mortgage customers will not be sold to a ‘vulture fund or inactive lender’ – leading to fears they could become ‘mortgage prisoners’.
Some 23,000 customers were left in the lurch last week as Tesco Bank announced it was exploring the sale of its mortgage book after ceasing all new lending.
Tesco Bank has since come under pressure from MPs to guarantee it will only sell its mortgage book to a regulated and active lender – amid fears that would trap some borrowers on deals they cannot switch away from.
Tesco Bank became the highest profile casualty of the mortgage price war last week
Some 27 MPs from a cross-party group sent a letter to Tesco Bank chief executive Gerry Mallon urging the lender to ‘repay its customers’ trust’ by only exploring a sale to an active lender.
The letter, which includes signatures from Yvette Cooper MP and Norman Lamb MP, said: ‘The all party parliamentary group on mortgage prisoners is concerned about the lack of protection for customers when their mortgages are sold on to other lenders.
‘We have seen the damaging impact when mortgages are sold to vulture funds or inactive lenders which hold trapped customers on high standard variable rates.
‘Your customers put their trust in Tesco. We hope that you will repay that trust by committing to only sell their mortgages to a fully regulated active lender which will offer them new deals and fixed interest rates.’
But today the bank did not directly respond to specific questions put to it by This is Money on whether it would make such a guarantee to its customers.
Tesco Bank was asked whether it would commit to only sell its mortgage book to an active and regulated lender. The lender was also asked whether it could guarantee the buyer would be a signatory to an industry agreement made last year, which enables borrowers on a reversion rate to move to a better deal.
This agreement was specifically designed to stop borrowers falling through the cracks and getting stuck with deals they cannot switch from.
Tesco Bank did not directly respond to either of these questions, and instead provided a statement from a spokesman.
The statement read: ‘Our priority in any sale is to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well.
‘There are no changes to customer accounts as a result of our announcement and we continue to offer a full mortgage service, including additional and new borrowing, to existing customers.
‘Should a sale be confirmed, we will write to customers to explain what it means for their account.’
Last week the supermarket giant’s fully-owned bank confirmed it was exploring a potential sale of its mortgage book after ceasing all new lending, having previously lent about £3.7billion to more than 23,000 mortgage holders.
Tesco blamed challenging market conditions as it closed its doors to new lending and ended a major chapter of its push into banking, once seen as a highly profitable area ripe for the supermarket to disrupt.
MPs expressed concern over previous mortgage books sold by lenders to ‘vulture funds’
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.
The problem of mortgage prisoners has emerged after lenders offloaded books of customers to companies not actively engaged in mortgage lending.
This means that homeowners whose circumstances have changed to the extent that they cannot move to a different bank or building society can find themselves stuck on higher interest rates than they would be paying at a bank or building society actively competing in the mortgage market.
Currently there are an estimated 20,000 homeowners stuck with lenders that are no longer active – with a further 120,000 stuck with firms that aren’t regulated by the UK’s financial watchdog, the Financial Conduct Authority.
The government itself sold off £4.9billion of Northern Rock loans last month to US investment banking giant Citi – classed as an inactive lender in the UK.
After receiving criticism for the move, the Treasury claimed that no active lenders had been interested in the sale, despite being invited to bid.
Will the mortgage price war spell trouble in the future?
Tesco Bank will continue with its other products, but why has it ditched mortgages, why have a string of other smaller players shut their doors in recent months, why did building society behemoth Nationwide issue its own caution on home loans – and what’s HSBC got to do with it all?
On this week’s podcast, Simon Lambert, Sarah Davidson and Georgie Frost dive into what is currently a weird world of mortgages: where a greater supply of money to lend than demand to borrow it means there are some very cheap deals on offer.
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Press play above or listen (and please subscribe if you like the podcast) at Apple Podcasts, Acast, Spotify and Audioboom or visit our This is Money Podcast page.