Lloyds Banking Group has bought Tesco Bank's mortgage portfolio of 23,000 customers after months of speculation over whether the bank would sell its book to an active or regulated lender.
In a statement today (September 3) Tesco Bank confirmed the £3.8bn deal will see its mortgage customers transfer to Lloyds'-owned Halifax over the coming months.
In May Tesco Bank announced it had ceased new mortgage lending as a result of "challenging market conditions" and was actively looking to sell its existing portfolio with a lending balance of around £3.7bn.
The move was met by calls from the all party parliamentary group on mortgage prisoners asking the bank to commit to selling the mortgages to a fully regulated and active lender in a bid to avoid potentially creating more mortgage prisoners — those locked in their mortgage when they could get a cheaper deal elsewhere.
Announcing its decision to exit the mortgage market Tesco Bank maintained there was no certainty a sale would result from its search for a buyer and in June it refused to commit to selling its loan book to an active and regulated lender despite the pleas from MPs.
The mortgage portfolio generated pre-tax profits of £9.1m in the 2018/19 financial year, but Tesco Bank said this arm of its business made an "immaterial" contribution to the bank's overall profitability after additional costs and central overheads.
Tesco Bank anticipates beneficial ownership of its mortgage accounts will transfer to Halifax, a division of Bank of Scotland which is a wholly owned subsidiary of Lloyds, at the end of this month (September) and legal titles will be completed by the end of March 2020.
The bank said the £3.8bn sales proceeds will be used for "re-investment into our customer offer, ongoing transformation of the business and re-balancing of retail and wholesale funding sources given the reduction in overall lending".
Gerry Mallon, chief executive at Tesco Bank, said: "Our focus is on how we best serve Tesco customers and align our resources effectively to their needs while ensuring that our offer remains sustainable in the long term.
"As a result, we made the decision to move away from our mortgage offering. Our priority throughout has been to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well.
"After a thorough process, we are pleased to confirm that we have agreed the sale of our mortgage book to Lloyds Banking Group, operating under the Halifax brand. We are confident that they will continue to provide our customers with an excellent customer experience."