From Monday Tesco's banking arm will offer a range of fixed-rate and tracker mortgages, available to homebuyers and those remortgaging. The deals will not be offered in stores but online or by phone from Tesco Bank's UK-based customer service team. Deals will not initially be offered through mortgage brokers.
Tesco first outlined plans to build a full-service bank in autumn 2009. The initial plan was to launch a chequebook account in 2010 and later add small business banking. It passed up the chance to buy the Northern Rock "good bank" as a quick way into the home loan market, saying it did not need the brand or branch network. Some brokers and commentators were disappointed that the launch lacked any market-leading products, particularly as the company's arrival in the market has coincided with a mortgage price war on the high street that has pushed some rates down to record low levels.
Tesco's rates start at 3.19% for a two-year fixed rate where the maximum loan is 70% of the property's value, with a £995 fee. Its cheapest five-year fix is 3.89%.
Other lenders have recently launched deals with lower headline rates: West Bromwich building society has a two-year fix at 2.95% for those borrowing up to 75% of the property's value. NatWest offers a five-year fix, also at 2.95%, for people borrowing up to 60% of their home's value. These low rates typically have high product fees – £2,495 in the case of the NatWest deal.
Borrowers will pay a flat booking fee of £195 and get the option of paying a product fee of £800 in return for lower repayment rates. However, it will only lend to people with deposits of 20 per cent or more, effectively freezing first-time buyers out of its offering.
The cheapest deal is a 3.19 per cent two-year fixed rate on a loan-to-value (LTV) of 70 per cent (where the borrower has equity or a deposit of 30 per cent). That rises to 3.59 per cent at 75 per cent LTV and 3.99 per cent where borrowers have 20 per cent to put down. Over five years the lowest rate is 3.89 per cent, while the trackers will start at the Bank of England base rate plus 2.69 per cent
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