TESCO is poised to launch a major offensive into Britain’s multibillion-pound mortgage lending market as part of a drive to seize more sales in financial services, The Times has learnt.
Tesco Personal Finance — a joint venture between Britain’s biggest supermarket and Royal Bank of Scotland — will hold a key board meeting at the beginning of October to decide whether to go ahead with its plans.
Tesco wants to offer its customers the opportunity to take out a new Tesco-branded mortgage or remortgage their existing property while buying their weekly groceries.
Currently, Tesco customers can only take out a mortgage through the One Account, which is owned and sold by Royal Bank, Tesco’s personal finance partner.
Last year, the supermarket group derived £80 million in pre-tax profits from selling other financial products, such as credit cards, personal loans, and motor and holiday insurance. Those earnings represent a near 100 per cent increase on profits in 2002.
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Should the mortgage scheme go ahead, Tesco customers are expected to be able to take out a mortgage in some stores by the end of this year.
Tesco wants to promote its mortgages through in-store literature.
The supermarket group’s move comes as lenders find it increasingly tough to operate in the highly competitive mortgage market.
Only three months ago, Sainsbury’s Bank was forced to stop selling home loans after poor sales.
Mortgage experts yesterday warned that Tesco is facing a difficult task to seize market share in the UK mortgage market, with rising interest rates and growing numbers of UK lenders.
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Heather Scott, of Intelligent Finance, the online banking arm of Halifax, which entered the mortgage market three years ago, said: “The market is tougher now than it has ever been. Buying a home is the biggest outlay in many people’s lives and many want the reassurance of advice and help with such a decision.
“If Tesco believes it can sell a mortgage off the shelf like a tin of beans, it could be in for a surprise.”
Simon Tyler of Chase De Vere Mortgage Management, the mortgage broker, said: “The only way Tesco will succeed is if it offers market-leading products. Mediocre rates won’t be enough to pull in enough business to make it work.
“It will undoubtedly be a mass-market proposition rather than offer any of the more sophisticated deals that you can get from specialist lenders and brokers. Nevertheless, competition tends to be good for consumers, so in that sense we would welcome their arrival.”
The move into the home loan market comes in a buoyant year for Tesco and its chief executive, Sir Terry Leahy.
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The retailer revealed a 7.8 per cent jump in second- quarter sales this year, achieving its seventh successive quarter of reported growth despite a bitter price war with rivals.
Stuart Neill, head of media relations at Tesco Personal Finance, said: “Tesco PF is continuously looking at a range of different products to determine their viability. At this stage we cannot guarantee that mortgages will become a Tesco PF product.”