Sainsbury's pulls plug on mortgage lending

Sainsbury's pulls plug on mortgage lending

Sainsbury’s is the latest lender to exit the mortgage market, citing “narrower margins” in an “increasingly competitive market” as the basis for pulling the plug on new lending.

The supermarket and banking group announced it would “immediately stop new mortgage sales” as part of a financial services five-year plan in a trading update to the stock exchange this morning (September 25).

A spokesperson from Sainsbury’s Bank told FTAdviser the market had become “increasingly competitive” since its launch two years ago and “narrower margins” meant the decision was made to stop mortgage lending to help the company’s balance sheet in a strategic review of its finances.

The spokesperson also confirmed existing customers would be serviced as they had been prior to the announcement and any applications already in the pipeline would be honoured.

The group stated it was keeping “all options open” in terms of whether its existing loan book would be sold.

Sainsbury’s is the latest in a string of lenders to exit the mortgage market as the so-called mortgage price war has seen lenders cut rates in a ‘race to the bottom’.

The competitive mortgage space saw lenders’ profits tumble in the first half of the year, with some banks and building societies seeing their income drop by up to 10 per cent.

The challenging market conditions forced Tesco Bank to pull the plug on its mortgage lending arm in May, and its chief executive said the market had left it with “limited profitable growth opportunities”.

Secure Trust Bank also left the mortgage market in February of this year due to the current economic climate, increased competition and pressures on the housing market.

Martin Stewart, director at the Money Group, thought the market was likely to see more lenders “call it a day” soon as transactions continued to fall and margins tightened.

Managing director of Coreco, Andrew Montlake, agreed. He said: “It’s pretty brutal out there right now and more departures are likely.”

He added: “Lower home purchase levels are rubbing salt in the wound of the exceptionally low rate environment.

“Lenders are experiencing a double whammy of low rates, hammering margins, and relatively low transaction levels, hitting volumes.

“For peripheral mortgage players it’s a bridge too far, all the more so with the potential impact of Brexit yet to be felt.”

Earlier this year the mortgage price war prompted a Bank of England governor to warn lenders the central bank was watching them “like a hawk” to ensure they did not expose themselves to more risk in their lending practices as they fought for a bigger market share.

But new Bank of England rules, applicable from January 1 this year, had actually amplified the price war.

The rules created a firewall between the banks' investment banking operations and their lending arms to ensure they were still able to lend and consumer money was safe even if a shock hit the banking sector.