Pile 'em high, sell 'em cheap: weigh up a home loan when you're shopping at Tesco

Melanie Bien asks if the supermarket can succeed where it has failed before, by offering a discounted deal at 4.75 per cent

The next time you pop into your local super- market, you may be surprised to find that you can pick up a mortgage along with your baked beans and cat food. Last week Tesco launched its own branded mortgage, which will be available in more than 700 of its stores.

The next time you pop into your local super- market, you may be surprised to find that you can pick up a mortgage along with your baked beans and cat food. Last week Tesco launched its own branded mortgage, which will be available in more than 700 of its stores.

While supermarket customers have long been able to pick up pet insurance, life cover, car and travel insurance, personal loans, savings accounts and credit cards in store, mortgages have been absent from the range of finance products on offer at the checkout. They have been tried and tested - both Tesco and Sainsbury's have launched home loans in the past - but were withdrawn from sale because take-up was so poor.

Now, as Tesco returns to the fray, it faces an even stiffer challenge. There is so much competition in the mortgage market that the rate has to be attractive to catch the attention of customers who have come into the store to find something for dinner.

So Tesco's strategy is to concentrate its energies on offering one, good, value-for-money product - a three-year variable discount rate.

At 4.75 per cent (guaranteed to be the same as the Bank of England base rate during the offer period), it sits near the top of the "best buy" tables. Only Mercantile Direct's 4.74 per cent has the edge on it.

Once the discount period on the Tesco mortgage comes to an end, the deal reverts to the company's standard variable rate, which is guaranteed to be no more than 0.99 per cent above base - giving a current payable rate of 5.74 per cent. Interest is calculated daily and customers can borrow up to 95 per cent of the value of the property.

There is a £399 arrangement fee for both people remortgaging and first-time buyers, but the former don't have to pay legal or valuation costs. You have the option to overpay by 10 per cent of the borrowed amount during the discounted period (there is no limit after this time).

The Tesco mortgage is provided by First Active, part of the Royal Bank of Scotland group. The supermarket will test customer reaction before deciding whether to add other mortgage deals.

"We want to give our customers a refreshing, simple, straightforward and great-value option," says Alistair Smillie, head of Tesco Mortgages. "By applying Tesco value and pricing, we believe homebuyers will now have a real money-saving alternative to many of the over-complicated products offered elsewhere."

Sainsbury's Bank launched its first mortgage in July 1997 but stopped offering home loans in May this year after rumoured poor sales. However, Stuart McMillan at Sainsbury's Bank says it is reviewing the situation and is aiming to launch another mortgage towards the end of next year.

"We pulled out of mortgages as with most products we try to make a bit of a difference and offer something that puts us near the top of the 'best buy' tables," he says. "But there was nothing to differentiate our mortgage product from what was already on the market.

"It's the nature of a supermarket: we chop and change what is on our shelves according to customer demand."

Other supermarkets have no plans to launch a mortgage at this stage, leaving the field open to Tesco. But while its grocery business is doing well and its financial products - which include insurance, personal loans, credit cards and savings accounts - have been well received, it remains to be seen whether the mortgage will be a success.

James Cotton at broker London & Country likes the product and thinks it will sell well.

"Tesco has done well in other areas of finance," he says. "Maybe customers who have been happy with the other financial products they've bought will consider the mortgage too."

Tesco's mortgage literature will be available in store, so interested customers can take a form away, read the details and contact the company by telephone or online to apply for a home loan. However, Tesco's sales people will not be able to give advice on whether the mortgage is right for the potential applicant.

"We will speak to customers to see what they want from us and if the mortgage meets all their criteria. We won't give advice," says Mr Smillie at Tesco Mortgages.

"A lot of people need advice because there are plenty of complicated products in the mortgage market. But this is as easy and transparent as possible, so if they need a good deal and can understand it, they can come to us."

But Mr Cotton at London & Country reckons there is still a place for independent advice when you take out a home loan - something Tesco can't provide.

"I am sure there are people out there who are more than happy to make their own mind up," he says. "But if you see [the Tesco] rate and think it looks like a good deal, at least have a bit of a shop around. Otherwise, you might miss some of the best deals out there.

"As you can get this rate elsewhere [from First Direct], there is no harm using a broker. You will still get this rate if it's the best one for you, and if it isn't, you'll get a better deal."

News
More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete today
News
people'I’d rather have Fred and Rose West quote my characters on childcare'
Life and Style
The new Windows 10 Start Menu
tech
Arts and Entertainment
There has been a boom in ticket sales for female comics, according to an industry survey
comedyFirst national survey reveals Britain’s comedic tastes
PROMOTED VIDEO
Travel
Bruce Chatwin's novel 'On the Black Hill' was set at The Vision Farm
travelOne of the finest one-day walks you could hope for - in Britain
Sport
footballManchester City 1 Roma 1: Result leaves Premier League champions in danger of not progressing
Arts and Entertainment
Gay and OK: a scene from 'Pride'
filmsUS film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
News
i100
Life and Style
Magic roundabouts: the gyratory system that has excited enthusiasts in Swindon
motoringJust who are the Roundabout Appreciation Society?
Arts and Entertainment
Hilary North's 'How My Life Has Changed', 2001
booksWell it was good enough for Ancient Egyptians and Picasso...
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Trust Accountant - Kent

    NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

    Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

    £18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

    Law Costs

    Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

    Day In a Page

    Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

    The children orphaned by Ebola...

    ... then rejected by surviving relatives over fear of infection
    Pride: Are censors pandering to homophobia?

    Are censors pandering to homophobia?

    US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
    The magic of roundabouts

    Lords of the rings

    Just who are the Roundabout Appreciation Society?
    Why do we like making lists?

    Notes to self: Why do we like making lists?

    Well it was good enough for Ancient Egyptians and Picasso...
    Hong Kong protests: A good time to open a new restaurant?

    A good time to open a new restaurant in Hong Kong?

    As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
    Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

    Paris Fashion Week

    Lagerfeld leads a feminist riot on 'Boulevard Chanel'
    Bruce Chatwin's Wales: One of the finest one-day walks in Britain

    Simon Calder discovers Bruce Chatwin's Wales

    One of the finest one-day walks you could hope for - in Britain
    10 best children's nightwear

    10 best children's nightwear

    Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
    Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

    Manchester City vs Roma

    Five things we learnt from City’s Champions League draw at the Etihad
    Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

    Trouble on the Tyne

    Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
    Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

    Isis an hour away from Baghdad -

    and with no sign of Iraq army being able to make a successful counter-attack
    Turner Prize 2014 is frustratingly timid

    Turner Prize 2014 is frustratingly timid

    The exhibition nods to rich and potentially brilliant ideas, but steps back
    Last chance to see: Half the world’s animals have disappeared over the last 40 years

    Last chance to see...

    The Earth’s animal wildlife population has halved in 40 years
    So here's why teenagers are always grumpy - and it's not what you think

    Truth behind teens' grumpiness

    Early school hours mess with their biological clocks
    Why can no one stop hackers putting celebrities' private photos online?

    Hacked photos: the third wave

    Why can no one stop hackers putting celebrities' private photos online?