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 They have been tried and tested - both Tesco and Sainsbury's have launched home loans in the past - but were withdrawn from sale because take-up was so poor.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."

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

    Recruitment Genius: Sales Assistant / Buyer

    £15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

    Recruitment Genius: Compliance Manager

    £40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

    Day In a Page

    John Palmer: 'Goldfinger' of British crime was murdered, say police

    Murder of the Brink’s-MAT mastermind

    'Goldfinger' of British crime's life ended in a blaze of bullets, say police
    Forget little green men - aliens will look like humans, says Cambridge University evolution expert

    Forget little green men

    Leading evolutionary biologist says aliens will look like humans
    The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

    The Real Stories of Migrant Britain

    An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
    Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

    Dying dream of Doctor Death

    Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
    UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

    39.8 degrees recorded on Tube

    There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
    Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

    Computerised cooking is coming

    From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water
    Jessie Cave interview: The Harry Potter star has published a feminist collection of cartoons

    Jessie Cave's feminist cartoons

    The Harry Potter star tells Alice Jones how a one-night stand changed her life
    Football Beyond Borders: Even the most distruptive pupils score at homework club

    Education: Football Beyond Borders

    Add football to an after-school homework club, and even the naughtiest boys can score
    10 best barbecue books

    Fire up the barbie: 10 best barbecue books

    We've got Bibles to get you grilling and smoking like a true south American pro
    Wimbledon 2015: Nick Bollettieri - Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power

    Nick Bollettieri's Wimbledon Files

    Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power
    Ron Dennis exclusive: ‘This is one of the best McLaren teams ever – we are going to do it’

    ‘This is one of the best McLaren teams ever – we are going to do it’

    Ron Dennis shrugs off a poor start to the season in an exclusive interview, and says the glory days will come back
    Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

    Making of a killer

    What motivated a shy student to kill 38 holidaymakers in Tunisia?
    UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

    Just when you thought your commute couldn't get any worse...

    Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
    Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

    The Real Stories of Migrant Britain

    Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
    Cheaper energy on the way, but it's not all sunshine and rainbows

    Cheaper energy on the way, but it's not all sunshine and rainbows

    Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most