Lloyds beats rivals to £3.7bn Tesco Bank mortgage book

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Lloyds has entered exclusive talks to buy the supermarket giant’s book of mortgages, Sky News learns.

‎Britain’s biggest mortgage lender has seen off competition from some of its biggest high street rivals to snap up a £3.7bn book of home loans from Tesco Bank.

Sky News has learnt that Lloyds Banking Group has entered exclusive talks to buy the ‎prime mortgages, which will strengthen its position in the market.

City sources said that if completed, Lloyds would pay tens of millions of pounds to Tesco to seal the supermarket giant’s exit from the UK mortgage market.

Lloyds, which reports half-year results on Wednesday, saw off rival bidders Santander UK and Royal Bank of Scotland to secure preferred bidder status, which lasts until the end of August.

The acquisition is the latest in a series engineered by Lloyds’ chief executive, Antonio Horta-Osorio.

In recent years, it has focused on deals in areas of consumer finance where it is under-represented, such as credit cards.

The lender, which is expected to report a healthy set of interim figures despite caution about the outlook for the UK economy, will be followed later this week by Barclays and RBS.

Had RBS won the auction of Tesco Bank’s mortgage book, it would have been the Edinburgh-based lender’s biggest takeover since the financial crisis.

Tesco Bank’s retreat from the mortgage market‎ was signalled in May.

It was attributed by Gerry Mallon, its chief executive, to “challenging market conditions” which it said had “limited profitable growth opportunities”.

Ironically, the advent of ring-fencing for the UK’s biggest lenders, a key structural reform designed to make banks safer, is among the factors that have prompted banks’ mortgage pricing to become more competitive.

That has made it harder for challenger banks to make inroads into the market.

“Our priority in any sale is to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well,” Mr Mallon said recently.

Tesco Bank began offering home loans in 2012, and currently has about 23,000 mortgage customers on its books.

The sale process has been overseen by investment bankers at Citi.‎

Lloyds and Tesco Bank declined to comment.

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