Rates start at 3.19% for a 2-year fixed rate up to 70% loan to value while the 2-year fixed rate up to 80% LTV is priced at 3.99%.
Its 5-year fixed rate up to 70% is priced at 3.89% with a booking fee of £195 and up to 80% LTV is on offer from 4.69%.
Tesco Clubcard holders will be rewarded with Clubcard points as they repay their mortgage and will collect one point for every £4 on their monthly mortgage repayments.
Philip Clarke, chief executive of Tesco, said: “Customers want choice in banking from a brand they know and trust to deal with them fairly. The launch of Tesco Bank mortgages is a major milestone towards offering Tesco customers a full retail banking service.”
Benny Higgins, chief executive of Tesco Bank, said: “Entering the mortgage market is a significant step in broadening the products we offer to Tesco customers. We begin as we plan to go on - launching a product for Tesco customers designed to meet their expectations of value, customer service and reward.”
The mortgage market welcomed the entrance of a new lender but urged Tesco to consider using brokers.
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, said: "Given the importance that the Financial Services Authority has placed on advice in their latest Mortgage Marker Review paper and the need for the industry to deliver the best outcomes for consumers, lenders should be offering their products through intermediaries as well as direct.
“The lessons learned by ING show the benefits of having the widest possible approach. It is by delivering through brokers that consumers can be sure the products are robust, sustainable and competitive."
Andrew Montlake, communications director at Coreco, said while he welcomed “the much needed additional competition” he was unconvinced a direct-only supermarket brand could offer customers the kind of products, service and advice most borrowers need.
He added: “Working closely with professional brokers Tesco could have quickly ironed out any potential issues and ensure that those taking their products are best suited to them, as well as helping distribution.
“With the market in such a state of flux another lender offering a non-advised mortgage process is, in my opinion, not ultimately in the best interests for a majority of borrowers.”
David Copland, director of mortgage services at LSL Financial Services, said the decision was “very disappointing but unsurprising”.
But he warned: “A consumer rejected by Tesco may vote with their feet and boycott the supermarket and they will no doubt relay this story many times over to their friends and family.”
Lea Karasavvas, director of Prolific Mortgage Finance, said he believed the entry will help competition in both the direct channel and the intermediary channel forcing lenders to narrow their margins to maintain their market share.
But he said: “Too many variables are involved in the criteria of each lender meaning that expert advice from independent brokers is still a vital part of the market and applying for a mortgage whilst picking up your groceries may be something clients would be wary of.”
David Hollingworth, associate director, communications at London & Country Mortgages, added: “Although I’m sure that intermediaries would have been keen to have the chance to work with another lender it is good to have a new player in the market that will help improve the level of competition more generally.
“Hopefully as the Tesco brand becomes more established we could see them consider the broker market to help build its presence.”
But Tesco Bank managing director David McCreadie said: “We’ve no plans to start distributing via brokers at this stage, our focus is purely on launching direct to consumer. We will be internet-only when we launch and that’s because this is how we distribute our other finance products today and we’re doing the same on mortgages.”
The Tesco Bank mortgage product range includes 2, 3 and 5-year fixed rate mortgages and a 2-year base rate tracker.
All products will move onto the Tesco Bank Standard Variable Rate of 4.24% at the end of the initial fixed or tracker rate period.
There is a flat booking fee of £195 on all products and customers can choose between a £0 or £800 product fee option to suit their needs.
Early Repayment Charges apply during the initial rate period.
Ray Boulger, senior technical manager at John Charcol, said any hopes that the entry of Tesco would produce a significant increase in competition “have been dashed at least in the short term”.
He said: “Even if Tesco subsequently beefs up its rates, which it will have to do if it wants serious volumes, limiting availability to online and phone applications will severely limit take up as most borrowers prefer face to face contact for something as complicated as choosing the right mortgage.
“Tesco claims that its mortgages offer competitive rates. If it thinks these rates are competitive either it has re-defined what the word “competitive” means or it is living in a parallel universe!”
Tesco’s 5-year fixed rates are at least 0.5% higher than the most competitive lender at each of its three LTV bands with many of these cheaper competitor rates also offering lower fees on purchases.
For borrowers who only need an LTV of 60% or less fixed for five years it is even more uncompetitive with HSBC and Santander both offering 2.99% rates and NatWest offering 2.95%.
Tesco’s SVR is at the same as Santander’s but higher than the SVR of all five of the market’s biggest lenders.
Boulger said one good feature not generally available is overpayments of up to 20% p.a. are allowed on all products without an early repayment charge being incurred.
