Homeowners who took out a mortgage with Sainsbury’s Bank risk having their accounts transferred to a so-called “zombie bank”.
The supermarket giant announced in September that it would withdraw from the mortgage market and sell its existing loan book. This process is now underway, but it is understood that few mainstream banks have made a bid for the mortgage book. This has sparked concerns that these mortgages may be sold to an inactive lender which would charge higher rates than the competition.
Sainsbury’s Bank would not rule out the sale of its mortgages to an inactive lender.
Although the purchaser of the mortgage book would be required to adhere to existing terms and conditions, when customers reached the end of their agreed term they could be hit with significantly higher interest rates.
In this instance, customers would be forced to switch to another provider, potentially paying hundreds of pounds in fees.
Mark Harris of SPF Private Clients, a mortgage broker, said: “Any borrower stuck with a lender who is not actively lending is in a tricky position.
“They are unlikely to get the best mortgage rate on the market and if they need to make any changes to their deal, they will be encouraged to remortgage elsewhere to another lender who can accommodate them.”
Mr Harris said in some cases these customers could become “mortgage prisoners”, homeowners who are trapped with their existing provider and unable to switch elsewhere because their personal circumstances have changed, meaning they no longer pass lenders’ affordability checks.
He added: “In terms of the cost of remortgaging, many lenders will offer free valuations and free legals, but you may have to spend circa £1,000, if not more, to access the best rates.”
Tesco Bank customers faced a similar scare earlier this year, when the retailer announced it would sell its mortgage business. However, in that instance the mortgages were ultimately bought by Lloyds Bank.
A spokesman for Sainsbury’s Bank said: “As announced in September, we have stopped issuing new mortgages and are exploring options for the existing book. One option is to sell the book and we are exploring this option with interested parties. We emphasise that this is only one of the possible options.”