Tesco Joins Mortgage Market
Britain’s biggest supermarket is joining the mortgage market, to be launched after it buys RBS out of its share of the Tesco Personal Finance joint venture.
Tesco is about to tread where others are walking on hot coals by entering the mortgage market. Tesco has teamed up with First Active (part of The Royal Bank of Scotland Group) to create Tesco Mortgages.
The biggest supermarket in Britain is to offer mortgages through a retail bank branded as Tesco. It will be launched after it has bought out Royal Bank of Scotland’s share in the Tesco Personal Finance joint venture. This £1bn deal is expected to be completed in November.
According to Tesco finance director Andrew Higginson the mortgage market is attractive to Tesco as rational pricing gives them a chance to move in. He will be the new CEO of Tesco’s retailing services division, which will include banking and personal finance. His target is to grow divisional profits to £1bn in the next few years.
Good news came from Tesco in the current market turmoil, with the announcement of an 11.3% rise in profits for the six months to August, to £1.4bn. Sales were up 14% to £28.1bn. Like-for-like sales were up by 6.7%, or 3.7% not including petrol.
Tesco chief executive Terry Leahy is optimistic about the group’s prospects moving towards Christmas. He said that Tesco was at its best in tough markets, and as people saved to spend at Christmas, Tesco was in a good position to respond. Traditionally able to undercut other supermarket brands, Tesco has come under pressure from even bigger discount supermarkets like Aldi and Lidl. However, Leahy was sure that shoppers would come back with the launch of competitively priced Market Value-brand products, and 400 items of Discount ‘Brand at Tesco’.
Tesco’s venture in the international market has been successful, with strong growth, and a £346m in trading profit for the first half of 2008, which compares favourably with £271m for the same period last year.
They will be hoping the mortgage business will prove as successful an innovation.
