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Tesco out in front with mortgage lines; STORES GIANT ALSO PLANS TO OFFER CURRENT ACCOUNTS.

Byline: RHODRI EVANS

TESCO BANK has launched its long-anticipated push into the mortgage business, with some market-leading deals which also offer customers Clubcard points on their repayments.

The supermarket giant also plans to launch cash Isas before the next tax year starts, as well as current accounts to coincide with changes next year to make switching easier, giving customers a "complete package" of products.

Tesco will offer mortgages to people with deposits of 20% or more, but declined to give a figure for the amount it plans to lend or the number of customers it hopes to attract, saying its immediate plans are "modest".

The product range, which became available on Monday, includes two, three and five-year fixed-rate mortgages, and a two-year base rate tracker.

Rates start at 3.19%, for a two-year fixed-rate mortgage with a minimum 30% deposit, which includes an pounds 800 product fee. A non-refundable booking fee of pounds 195 also comes with the deals.

The mortgages also aim to give an added incentive for those who do their regular shop at Tesco, as shoppers with Tesco Clubcards will receive a point for every pounds 4 on their monthly mortgage repayments.

Someone paying pounds 750 a month on their mortgage would receive Clubcard points worth pounds 22 over a year which could be converted into rewards worth pounds 88, although Tesco emphasised that its primary aim was to offer competitive rates and the Clubcard points were an added "thank you".

A spokeswoman for the bank, which already offers insurance, credit cards and savings products, said that building the mortgage business would be a "long-term project".

She said: "Tesco Bank's aspirations are modest in the short term and will grow as the product range is extended and the bank establishes itself in the mortgage market."

Rachel Springall, spokeswoman for comparison website Moneyfacts, said Tesco was the first supermarket to launch mortgages into the market, when the Co-operative Bank, which has been in the financial services sector for 140 years, is not included.

She said: "Tesco Bank's two-year fixed mortgage at 70% loan-to-value (LTV) at 3.19% will be the joint market leader with Nationwide Building Society, by rate for deposits of 30%.

"As the only supermarket to bring forward a range of mortgages, it will be interesting to see whether new supermarket lenders bring out a range of their own in the attempt to compete with the high street banks."

David McCreadie, banking managing director at Tesco Bank, said the 80% LTV rate was an appropriate starting point for a "responsible" lender and it would keep an open mind about introducing mortgages with lower deposits.

All the mortgages would allow customers to make regular or lump-sum overpayments of up to 20% of the outstanding balance each year during the initial rate period, without incurring an early repayment charge.

The bank's plans for current accounts have been put on hold to allow Tesco to take advantage of new rules making it easier for customers to switch.

Mr McCreadie said Tesco still planned to launch the accounts to closely coincide with the changes being brought in by the Payments Council next autumn.

From September 2013, the council will introduce rules to make it easier and quicker for people to switch accounts.

Mr McCreadie added: "We will launch cash Isas in advance of the Isa season next year.

"We will be aligning the launch of current accounts alongside Payments Council initiatives to make switching easier."

He said the moves would "serve all of our customers' banking needs".

The jump into the mortgage market comes at a tough time for mortgage lending generally as figures from the British Bankers' Association (BBA) showed that approvals slumped to their lowest number in at least 15 years in June.

Lenders have been tightening their borrowing criteria and people with low deposits are expected to have a particularly tough time finding a deal in the coming months.

There have been some recent signs of a mortgage war between lenders competing to attract less "risky" homeowners with deposits of around 40%.

Tesco Bank, which has 6.5 million customers, was launched in 1997 as a joint venture between supermarket giant Tesco and Royal Bank of Scotland.

Tesco acquired the remaining 50% RBS stake in 2008 for pounds 950m and the bank is now fully owned by Tesco.

The move comes during a shake-up of the banking sector after Marks & Spencer's first bank branch opened its doors last month, offering seven-days-a-week banking facilities and a pager service meaning customers could carry on with their shopping instead of queuing.

It also comes as mainstream banks are battling to win back confidence in the wake of Nat-West's IT chaos and Barclays' Libor-fixing scandal.

The market is also set to see a shake-up as it was confirmed last month that Lloyds Banking Group had agreed to sell 632 branches to the Co-operative Group, tripling the size of the Co-op's banking arm to nearly 1,000 branches to create a "real challenger bank".

Andrew Hagger, spokesman for website Moneynet, said Tesco would bring some extra competition to the high street as its existing products often appeared on "best buy" tables.

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* Tesco plans to offer an extra thank-you to its Clubcard customers who also take out a mortage with the supermarket
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Title Annotation:Business
Publication:Western Mail (Cardiff, Wales)
Date:Aug 8, 2012
Words:881
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