Last month (May 21), Tesco Bank announced it had ceased new mortgage lending and was actively looking to sell its existing 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".
Following the announcement, the all party parliamentary group on mortgage prisoners asked the bank to commit to selling the mortgages to a fully regulated and active lender to avoid potentially creating more mortgage prisoners — those locked in their mortgage when they could get a cheaper deal elsewhere.
Mortgage prisoners are predominantly consumers who took out a mortgage before the financial crisis but the sale of mortgage loans to inactive lenders could trap more borrowers.
Earlier this year the government sold old Northern Rock loans to inactive lender Citi after the Treasury said it was unable to find an active lender for the deal.
but Tesco has not been operating in the high risk or specialist markets therefore its loan book could be more attractive to active lenders.
The APPG said it wanted a commitment from Tesco that guaranteed the loans would not be sold to an inactive lender.
In the letter sent to Mr Mallon shortly after the sale was announced 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."
The group also stated that any prospective buyer of Tesco’s mortgages should be a signatory to the UK Finance Agreement and that Tesco should to continue to offer its existing customers new mortgage deals and fixed rates until the loan book is sold.
In Tesco’s response, the bank stated it would continue to offer its customers new fixed rate deals until a sale was made and stressed that the bank’s priority in any sale was to complete a "commercially acceptable transaction" with a purchaser who would "continue to serve our customers well".
The APPG has since asked for further clarification on what this means for mortgage customers.
In a second letter sent to Mr Mallon last week (May 30), the APPG wrote: "It is good Tesco is seeking a transaction with another lender which will continue to serve your customers well - but your letter provides little information about what this will actually mean in practice."
The letter goes on to say that the group would be grateful for further clarification regarding any guaranteed protections for Tesco customers and whether the bank would only accept offers from active lenders.
The group also asked Tesco to provide a timetable which sets out how quickly the bank plans to proceed with a sale.
A spokesperson from Tesco said the bank had been clear from the point of announcement that it was a priority that its customers were served well in the future but would not commit to a sale to an active and regulated lender.
imogen.tew@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
