What would Tesco mortgages mean for the rest of the market?

July 22, 2009 by Brendan

News

Yesterday, we published an article about how Tesco is considering offering mortgages but this is not the first we’ve heard about the supermarket chain investigating this option. If Tesco were to proceed, how would this impact on smaller building societies or mortgage lenders?

A Datamonitor study earlier this year warned that the expansion prospects for Tesco Personal Finance (TPF) could be similar to that experienced by the supermarket’s retail division.

Currently, many smaller building societies or those that are still trading, rely on the business of local people. Tesco is likely to look to capture the same market with its safe and reliable reputation whereas existing mortgage lenders have lost much consumer confidence.

Neil Johnson from the Building Societies Association said:

“Building societies are competing very successfully on rates with high service. Being local is a big advantage as they can tailor products to local demand and they can cut the cost of borrowing and have higher saving rates as there are no shareholder dividends to pay.”

Tesco is already trialling in-store banks at 30 stores across the country and is reportedly considering launching a standalone bank although it is estimated it could be another 18 months for the launch of current accounts and a further six months after that for mortgages.