Tesco Bank will sell mortgages from Monday in the supermarket giant's latest foray into financial services.

Its initial range includes two, three and five-year fixed rate mortgages, and a two-year base rate tracker, but these rates can comfortably be beaten.

Tesco Bank's mortgages will only be available direct from the lender.

However, many borrowers require a broker's help given the mortgage market can be highly complex, and many middlemen won't recommend the Tesco deal as they won't be paid commission.

Tesco Clubcard holders who take one of the supermarket's mortgages will also get one point for every £4 on monthly repayments.

Rates falling

Tesco's launch comes at a time of falling rates in some mortgage categories. HSBC, NatWest and Santander all launched the first-ever sub-3% five-year fixes last month, but with a minimum £1,495 fee, and requiring at least a 40% downpayment.

It is possible to get a two-year fix at 2.95% with a £999 fee if you have a 25% downpayment from West Brom Building Society, while HSBC sells a two-year tracker at 2.99% with no fee if you have a 40% deposit.

Here is a flavour of Tesco's mortgages:

  • A two-year fix, which requires a minimum 30% deposit or equity, comes with a 3.19% rate and £995 fee.
  • A five-year fix with the same conditions comes with a 3.89% rate.
  • A two-year tracker under the same conditions is 3.19%, based on the current 0.5% base rate.

Sylvia Waycot, from Moneyfacts, says: "It is disappointing that despite having successful cards and loans to its credit, Tesco Bank on entering the mortgage sector, has not launched any market-leading deals."

Andrew Hagger, from financial website Moneynet, says Tesco's entry into mortgages will aid competition.

He says: "Consumers should benefit from the extra competition that Tesco Bank will bring to the mortgage sector as it battles for new business with the established high street lenders."

Current accounts 'some time off'

Tesco already sells loans, savings and credit cards. It plans to launch a current account but not for a while, and only when the switching process improves.

A Tesco Bank spokesman says: "Launching a current account is a key part of Tesco Bank's strategy to provide a full retail banking service.  

"We've always intended to complete the migration of our existing business and then develop the right current account.

"This continues to be the case and, as we've said for some time, we'll closely align our entry into this market with the implementation of new industry-wide systems to help customers switch current accounts more easily."