The end of supermarket banking?
In a move that could signal the beginning of the end for supermarket banking, Sainsbury’s announced this week that it will be bowing out of the mortgage market after only two years. This comes just a few months after Tesco made a similar announcement in May. While Tesco sold its portfolio of some 23,000 home loans to Barclays last month, the future of Sainsbury’s mortgages remains unclear. The supermarket has been tight-lipped about the future of its mortgage book, merely saying that the company is “examining all options.”
Whatever happens to the company’s estimated £1.4 billion portfolio, this is clearly a sign that supermarkets and other small lenders are struggling to compete in the current mortgage market.
Why are smaller lenders struggling?
The exit of Tesco and Sainsbury’s from the mortgage market, along with AA in February, takes place against the backdrop of a fierce price war in the industry. Economic uncertainty has led to historically low rates and a tendency towards longer fixed-term mortgages. This means that profit margins are extremely low and only companies selling high volumes of mortgages, i.e. high street banks, can make it worth their while. While Sainsbury’s and Tesco offered some great mortgage deals, they simply didn’t have a large enough customer base to make it profitable.
What will happen to existing Sainsbury’s mortgage customers?
Mortgage customers have no need to panic in the short term. The company is legally obliged to honour the terms of its existing fixed term mortgage contracts, so these will continue as normal. Once these contracts expire, customers will revert to a standard variable rate and will have to look elsewhere for a new fixed-term deal. If the supermarket ends up selling its portfolio to a rival bank, the buyer will also have to maintain the terms of all existing mortgages.
Sainsbury’s has also announced that it will honour its agreements with any customers who have been accepted for a mortgage but have not yet received their loan.