Get ready for mortgages from Tesco!

You'll soon be able to get mortgages as well as mushrooms and macaroons from the supermarket giant.

Regular readers will know that a certain supermarket giant is very dear to my heart. Given that I live in the town where Tesco has its headquarters, it might just be something in the water, but I do seem to spend an awful lot of time – and more to the point, money – in the nation’s largest supermarket.

The store has even seeped into my wallet, given that all of my spending goes on the marvellous Tesco Clubcard credit card, which gives your Clubcard collection a nice boost with every pound you spend, no matter where you spend it, but also currently offers a market-leading 13 months of 0% interest on purchases.

However, I may soon have to consider the store for far more than my groceries and credit cards, as Tesco is making a move into mortgages.

The Tesco banking arm

Tesco has been fairly open for some time about its banking ambitions, and last week saw the announcement that it hoped to make the move into mortgages in the first half of 2011, followed by current accounts in the second half of 2011/12.

The supermarket had hoped to start offering mortgages before the end of this year, but has been delayed due to the extra red tape in place following the collapse of lenders during the credit crunch.

However, should things go to plan, from the middle of next year we’ll have one more high-profile lender to consider when sorting out our home finance.

A good track record

When it comes to branching out into the world of finance, Tesco has a bit of pedigree. I’ve already highlighted its market-leading credit card, but the supermarket has its fingers in a few other financial pies.

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For example, if you’re after a personal loan Tesco offers a typical APR of 7.7% (or 7.6% for existing customers), a smidgen above the market-leading deals for new customers from Santander and Alliance & Leicester at 7.6%.

Tesco also offers a decent if unspectacular easy access savings account, paying 2.60% AER, and which you can open for as little as £1, while its insurance products are pretty decent too.

Tesco already has a decent track record when it comes to financial products, a good sign ahead of the big mortgage launch, right?

A question of distribution

So why am I concerned about Tesco’s entry into the mortgage market?

It all comes down to independent advice for me. It’s one thing to sign up for an average savings account, or even a credit card, on a whim while at the supermarket, but a mortgage is a different thing entirely. After all, signing up for a mortgage is pretty much the biggest financial commitment you’ll ever make.

Of course, I’m not daft enough to think that some shoppers will just pick up a quick two-year fixed rate while stood at the checkout, but I am concerned about just how these mortgages will be distributed.

The importance of advice

One of the most unfortunate by-products of the credit crunch was that lenders increasingly turned their back on independent advisers, and offered many products (often their most attractive rates) on a direct-only basis.

In my view, this is a disaster. Sure, some borrowers are comfortable sorting out a mortgage themselves, but there is a reason that up until the crunch truly hit 70% of all mortgage applications went through brokers. Independent advice is hugely important when it comes to mortgages; many of us need someone to help us work out which type of mortgage is best for our own attitude to risk and financial situation.

Brokers are also great at working out just how well you fit a lender’s criteria, and can work out for you just how likely you are to be accepted. This is a crucial point – we can all find a mortgage that looks good, but if you don’t qualify for it, and are then turned down, it can wreak havoc on your applications to other lenders.

And it’s not like the advice needs to cost a fortune – you can get mortgage advice absolutely fee-free from certain advisers, including lovemoney.com’s own mortgage team.

Keeping loyal

But I can’t help fearing that brokers will be cut out once Tesco makes the leap into mortgages.

We’ve already seen one national institution, the Post Office, move into mortgages yet refuse to deal with advisers, relying instead on the trust attached to the brand name. Given that the Post Office offers some of the most attractive looking rates at high loan-to-value, making them appear a great option for first-time buyers, it leaves me a little uneasy that some inexperienced borrowers may be trying to completely go it alone without really understanding what they are doing.

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I fully expect Tesco to do the same, particularly since a spokesperson for the supermarket has gone on the record as saying that Tesco’s mortgage offering will look to reward customer loyalty.

Would it really be so surprising to see 0.2% discounts on mortgages if you already have a Clubcard?

A positive for the market

Of course, I could be completely wrong, and Tesco will embrace the opportunities afforded by dealing with mortgage advisers.

The simple fact is that the mortgage market is not in a great state at the moment. As I wrote in Worst mortgage conditions for a decade, August saw the worst mortgage lending figures for that month since 2000. There just aren’t enough lenders actively looking for business, and Tesco has the size and brand recognition to really shake things up and bring some innovation to the market.

Tesco can be a real force for good for borrowers as the mortgage market enters yet another difficult period, but it could also put some borrowers in a difficult position if they don’t work alongside independent advisers. It will be interesting to see just what Tesco Mortgages looks like when it launches next year.

More: Five great ways to slash your mortgage costs! | Don't pay a penny for your mortgage

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.