A group of MPs has urged Tesco Bank to ensure the sale of its loan book will not create more mortgage prisoners.
On Tuesday (May 21), Tesco Bank announced it had ceased new mortgage lending and was actively looking to sell its existing £3.7bn portfolio of 23,000 mortgages.
Chief executive of the bank, Gerry Mallon, said the decision to pull the plug on its mortgage lending arm was down to "challenging market conditions" which had left it with "limited profitable growth opportunities".
He also said the bank’s priority in any sale of the loans was to complete a "commercially acceptable transaction" with a buyer who would "serve customers well".
But the all party parliamentary group on mortgage prisoners has asked the bank to go further and commit to selling the mortgages to a fully regulated and active lender.
In a letter sent to Mr Mallon yesterday afternoon (May 22), signed by 25 MPs, the APPG stated: "Your customers put their trust in Tesco. We hope that you will repay that trust by committing to only selling their mortgages to a fully regulated active lender."
Such a lender would be able to offer borrowers new deals and fixed interest rates, ensuring the sale didn’t create more mortgage prisoners.
Mortgage prisoners are those locked in their mortgage when they could get a cheaper deal elsewhere.
This concerns predominantly consumers who took out a mortgage before the financial crisis but the sale of mortgage loans to inactive lenders could trap more borrowers.
The APPG's letter also stated that any prospective buyer of Tesco’s mortgages should be a signatory to the UK Finance Agreement.
Lenders who signed this pledge — which represent 93 per cent of the active industry including Lloyds, NatWest, Nationwide and Santander — promised to enable borrowers on a reversion rate to move to a better deal back in July last year.
On top of this, the letter urged Tesco to continue to offer its existing customers new mortgage deals and fixed rates until the loan book is sold.
MP Seema Malhotra, co-chair of the APPG, said: "It is worrying that customers can find their mortgage sold on with little protection.
"This can lead to customers being stuck on a high standard variable rate and paying thousands of pounds extra in interest. We need to introduce proper safeguards and ensure that mortgage customers are not sold on to vulture funds and inactive lenders.
"I hope Tesco bank will commit to only selling its mortgage customers to a fully regulated, active lender which will offer its customers fixed rates and new deals."
Tesco has stated it would respond to the APPG's letter in due course but reiterated it intended to seek a transaction with a purchaser who would continue to serve its customers well.
The APPG for mortgage prisoners was set up earlier this month (May 15) to give cross-party support in parliament for those trapped in their mortgage.