The deal will see 23,000 mortgage customers transfer their loans to Halifax, which is owned by Lloyds
Lloyds Banking Group has seen off bids from several rivals to buy Tesco Bank’s mortgage business in a deal worth around £3.8bn.
The agreement means that Tesco Bank’s 23,000 residential mortgage customers will transfer to Halifax, which Lloyds owns, once the sale completes in March 2020.
It is also a deal that cements Lloyds’ position as the UK’s largest lender. Before the deal, it held a 20 per cent share of the UK mortgage market.
It comes after Tesco Bank said in May that it would wind up its mortgage lending and put the business up for sale as it battled challenging market conditions.
The rush to buy up Tesco Bank’s portfolio of mortgages has been keenly contested.
Lloyds reportedly beat rival bids from several high street competitors, including Santander and Royal Bank of Scotland, to secure the portfolio.
Mortgage lenders have come under pressure in recent months due to increased competition in the market, caused in part by new banking rules that require providers to ring-fence their retail businesses from their investment banking arms.
Tesco Bank chief executive, Gerry Mallon said their focus is on how to best serve Tesco customers and align the resources effectively to customer needs, while ensuring that their offer remains sustainable in the long term.
Mallon said that as a result, they made the decision to move away from their mortgage offering. The priority throughout has been to complete a commercially acceptable transaction with a purchaser who will continue to serve their customers well.
Vim Maru, group director of retail at Lloyds Banking Group, said this is a good deal for the group, the shareholders and Tesco’s mortgage customers.
Vim said that they believe their Halifax brand will make a good home for these customers and look forward to welcoming them to the group.
Many Tesco Bank borrowers have been concerned about which bank – if any – would snap up its portfolio of residential home loans.
Others were worried that they might be out of pocket, as many had chosen their Tesco Bank mortgage deals based on the additional perk of receiving Clubcard loyalty points.
Tesco Bank said that mortgage customers who are transferred will stop being awarded Clubcard points on their repayments from 27 September. But these customers will be offered a lump sum in November “to say thanks for being a Tesco Bank Customer”.
Tesco Bank said fixed rate customers will receive a lump sum of points for the remainder of their term based on their contractual monthly repayments.
Those on tracker rates will also receive a Clubcard lump sum based on the remaining length of their deal and monthly repayments, while standard variable rate (SVR) customers will receive a year’s worth of points.
Those in the application process or switching to a new deal will also receive a lump sum, as long as they have reached the formal offer stage.
