Tesco to sell £3.7bn mortgage book as competition bites
THE UK'S biggest retailer Tesco will stop mortgage lending at its banking business due to tough market conditions, it said yesterday, as rival lender Nationwide Building Society reported a drop in profit margins.
Tesco Bank, which serves more than 23,000 mortgage customers with total balances of £3.7bn (€4.22bn), said it would stop new lending and seek to sell its existing portfolio of home loans. It does not offer mortgages to customers in the Republic of Ireland.
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"In recent years, challenging market conditions have limited profitable growth opportunities," said Tesco Bank CEO, the former head of Ulster Bank, Gerry Mallon.
Bellwether mortgage lender Nationwide said yesterday its annual net interest margin - a measure of underlying loan profitability - fell to 1.22pc from 1.31pc the year before, though it was able to stabilise income.
The statements from the two lenders show how competition and a subdued economy are squeezing margins in Britain's home loans sector, a key source of profits for banks.
Nationwide said it expected margins would remain under pressure this year. "As you can imagine pricing remains extremely competitive. We have seen some stability in new business pricing over recent months, but overall trends in margins you will continue to see," said senior Nationwide executive Chris Rhodes.
Uncertainty over Britain's EU exit has prevented interest rate hikes that could have boosted loan margins, while a glut of new banks and rules pushing established players to lend more have increased the supply of mortgages.
Europe's biggest bank HSBC, in particular, has renewed its focus on home loans in Britain after ring-fencing rules designed to insulate savers' money from riskier trading activity forced it to carve out its British retail bank.
The newly-separated domestic bank had little choice but to boost mortgage lending to make money, intensifying competition in the market.
Tesco Bank said its priority would be to sell the entire mortgage portfolio for an acceptable price.