Tesco Bank mortgages 'now a hit' after it slashes rates by up to 0.5% just one month after launching products
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UPDATED:
12:02 GMT, 4 September 2012
Tesco Bank is reducing the rates on four of its fixed-rate and tracker mortgage products from today, whether customers are remortgaging or buying a new home.
The banking arm of the supermarket giant only moved into the mortgage market at the beginning of last month. But it is already chopping the rate on its five-year fixed rate with a 70 per cent loan-to-value (LTV) by 0.5 per cent – from 3.89 per cent to 3.39 per cent.
Its three-year fixed rate, also at the same LTV, has been slashed by 0.41 per cent from 3.69 per cent to 3.28 per cent, while its two-year deal has dropped 0.2 per cent to 2.99 per cent.
Mortgage lending: The bank arm of the supermarket giant has chopped rates on its deals – just one month after launching them
Andrew Hagger, independent personal finance analyst at Moneycomms, says the rate cut now makes the mortgage products 'a hit'.
He
said: 'When Tesco Bank announced details of its first ever range of
mortgage products on 6 August it was met with a rather lukewarm response
with many giving the thumbs down as the rates were deemed to be
uncompetitive.
'Today
the supermarket banking giant shows it means business and has hit back
with some hefty price reductions, pushing some of the new deals towards
the top of the best buys.'
Mr Hagger added: 'The rate on the
five-year fix to 70 per cent LTV has been slashed from 3.89 per cent to
just 3.39 per cent with a 995 fee while the two-year fix has been cut
by 0.20 per cent to 2.99 per cent and gives Northern Rock 2.89 per cent
(995 fee) and Woolwich from Barclays at 3.09 per cent (999 fee)
something new to think about.
'People
were probably expecting to see this aggressive pricing on launch, but
I’m sure Tesco wanted to be 100 per cent confident of its systems and
processes and being able to cope with the increase in applications that a
move of this ilk is likely to deliver.'
Tesco's two-year tracker deal has also been reduced from 3.39 per cent to 2.95 per cent. All of these products come with a 995 fee and are only available via it UK based customer service team online or on the phone – not via a broker.
At the end of the initial fixed or tracker rate period, all products move onto the Tesco Bank Standard Variable Rate (SVR), currently 4.24 per cent.
Tesco changes: The slashes in mortgage rates have made its deals much more appealing
David McCreadie, managing director of
banking at Tesco Bank, said: ‘We're pleased to offer customers some
good news by reducing our rates to as low as 2.95 per cent.
‘Today's
rate changes once again underline Tesco Bank's commitment to offering
highly competitive banking products which meet our customers' needs
today and as they continue to bank with us into the future.’
Tesco
Bank also offers mortgage customers Clubcard points as they repay their
mortgage, offering one point for every 4 monthly repayment.
For
example, someone paying 750 a month on their mortgage would receive
Clubcard points worth 22 over a year which could be converted into
rewards worth 88.
When
the bank launched its mortgage products last month, many experts
weren’t blown away by the deals, with some saying it had ‘mis-judged’
the market.
M&S Bank: Expected to launch mortgages in the near future
However,
some argued that it made sense for the bank, dipping its toes into the
market for the first time, to offer products that would only attract the
most loyal Tesco customers in order to test their systems to make sure
it was all working properly.
It was expected to launch mortgages last autumn, but delayed to iron out glitches.
The mortgage launch had been eagerly
awaited since the supermarket giant bought out its joint venture partner
Royal Bank of Scotland’s in 2008.
It already has 6.5million customers with credit cards, savings, loans and insurance products and is seen as being one of the best-placed challengers to break into the retail banking big league.
Its mortgages have been funded
initially from its healthy savings deposits, which it said are up by 70
per cent on the levels seen when Tesco gained full control in 2008.
Rachel Springall, spokeswoman for comparison website Moneyfacts, said at the time of the Tesco launch that it would be interesting to see if other supermarket lenders would bring out a range of mortgages.
Marks and Spencer, for example, launched its own bank two months ago and is expected to offer mortgages in the future.
She said: 'As the only supermarket to bring forward a range of mortgages, it will be interesting to see whether new supermarket lenders bring out a range of their own in the attempt to compete with the High Street banks.'
The supermarket is hoping to capitalise on the public’s disenchantment with major banks, although it lost a little of its own shine when it suffered a systems meltdown last year which left some savers unable to get into their accounts for four days.
The bank’s next move will be to offer cash Isas and it is looking to bring in current accounts later next year, in line with new easier switching rules.
Tesco Bank has a turnover of 1billion and revenue growth of 14 per cent in the last year.