Why Tesco Bank’s mortgage pain means you could save money

It’s been a bit of a bumpy ride this week. The pound has dropped to its lowest since January, stock markets have been more volatile than usual as trade talks between the US and China remain unresolved and, closer to home, we’ve seen another casualty in the mortgage market.

Tesco Bank has been lending to homeowners since 2012 but officially pulled the plug on all new mortgage lending this morning. 

The bank has also confirmed plans to sell off its existing mortgage portfolio, meaning that up to 23,000 borrowers with a Tesco Bank mortgage could find themselves passed on to new owners.

We have warned before that there’s a shakedown in the mortgage market coming

Tesco is the sixth lender to suspend mortgage lending this year, following AA, Secure Trust, Magellan, Fleet and Amicus, with all of them putting the decision to exit down to a market that is just too competitive to turn a profit. 

It’s not just the mortgage market minnows that are suffering, Nationwide Building Society today confirmed its profits had fallen, citing tough competition in the mortgage market as the reason. 

We have warned before that there’s a shakedown in the mortgage market coming – this is just another sign that things are getting really tough for providers. 

But what does this mean for borrowers?

Well, if you have a Tesco mortgage, the first thing to note is that this announcement will almost certainly have no effect on what you pay.

This is because, even if your loan is sold on to another party (such as a bank or private equity firm), while you’re in your deal you won’t see anything much change.

The changes will come when you get to the end of your deal – when you’ll have to remortgage to another lender or it’s likely you’ll end up on a much more expensive variable rate than you’ve been paying.

If you’re up to date with your payments and nearing the end of your two-year or five-year deal, it would be sensible to have a chat with a broker to see what you could remortgage to and whether it’s worth going early.

It’s potentially a different story for borrowers with Tesco Bank who are behind on mortgage payments or who have seen their employment circumstances or income change since they got their original loan.

These borrowers may find it trickier to remortgage to another lender because of tightening rules on how lenders assess whether you can afford to repay your mortgage.

Borrowers who end up with their mortgage owned by a company that doesn’t lend actively could see their options severely restricted – something the Government and regulator are currently looking into. 

Either way, it’s worth talking to an independent mortgage broker sooner rather than later to see what your options are.

In the meantime, that competitive intensity is throwing up some great offers.

Rates are still incredibly low, especially for those with a large deposit or amount of equity in their home.

And according to analysis from Moneyfacts, there are now over 200 more cashback incentives on mortgage deals than there were a year ago.

Barclays Mortgage, Cumberland Building Society, Nottingham Building Society, Principality Building Society, Post Office Money and Virgin Money all offer borrowers sums of £1,000 or more.

Interestingly, until yesterday, Tesco Bank was also in that list – perhaps an eleventh hour attempt to get business through the door.

Some lenders are also edging up how much they’ll lend compared to your income.

Tipton & Coseley Building Society has introduced a new scheme which will allow borrowers to take out mortgages of up to six times their income.

While a number of lenders already offer this, their products are restricted to professionals within pre-specified fields – for example, doctors.

According to broker Private Finance, this is the first product of its type open to all borrowers.

While maxing out your borrowing might look tempting – particularly at such low rates – remember to consider what you’d do if rates rise or your income doesn’t go up quite as much as you thought it would.

Getting yourself into a position where you fall behind on payments is in no-one’s interest, least of all yours.

Before signing up, why not have a chat with a mortgage broker who should be able to help you weigh up the pros and cons of each deal. 

Elsewhere this week, we take a look at the best cards for spending abroad as we get ready for holiday season.

And HSBC is offering current account switchers a whopping £175 cash bonus – take a look at our review for all the details.



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