TESCO Bank has revealed plans to exit the mortgage market in a move which casts doubt on jobs in Scotland and underlines the difficulties posed to lenders by ultra-low interest rates.

The Edinburgh-headquartered bank cited “challenging market conditions” as it revealed it had ceased new mortgage lending and was seeking a buyer for its existing mortgage portfolio.

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Twenty jobs in the bank’s mortgage department will be directly affected by the move, with the fate of 140 employees at out-sourcer Capita, who work for the division at the Broadway One office in Glasgow, unknown at this stage.

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A spokeswoman for Capita said: “We will continue to work closely with Tesco to deliver a seamless service for their existing mortgage customers.”

Tesco Bank said: “Twenty Tesco Bank colleagues are affected by this announcement and we will look for redeployment opportunities where possible.”

Tesco Bank, which has offered mortgages since 2012, currently serves more than 23,000 customers, with total lending balances of £3.7 billion.

Its decision to exit the mortgage market comes as the UK’s major banks continue to find it difficult to grow their books in the face of ultra-low interest rates, which have persisted since the financial crisis around a decade ago.

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The Bank of England base rate is currently 0.75 per cent, having been increased by its Monetary Policy Committee by 0.25% in August. The committee had cut the rate to 0.25% as the value of sterling plunged in the aftermath of the Brexit vote in the summer of 2016, and remained at that level until November 2017.

Tesco Bank, which offers credit cards, loans, current accounts and savings accounts, said it would shift its focus to “more specific areas”, without elaborating on what they would be. A sale would involve the transfer of related balances and the ongoing administration of relevant accounts.

Chief executive Gerry Mallon, who succeeded Glasgow-born Benny Higgins last year, said: “In recent years, challenging market conditions have limited profitable growth opportunities. Our focus is on how we best serve Tesco customers and align our resources effectively to their needs while ensuring that our offer remains sustainable in the long term.

“To that end, we have made the strategic decision to focus on serving a broader range of customers in more specific areas, which means moving away from our mortgage offer. We have therefore chosen to cease lending to new customers and announce our intention to explore a sale of our portfolio. Our priority, in any sale, is to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well.”

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The move by Tesco Bank comes after state-backed Royal Bank of Scotland cited “unprecedented pressure” in the mortgage market as it reported a fall in first-quarter profits in April. Outgoing Royal chief executive Ross McEwan said at the time: “In personal banking, the UK mortgage market continues to show unprecedented levels of competitive pressures. Average rates across a range of loan to values remain at historic lows.”

Laith Khalaf, senior analyst Hargreaves Lansdown, said the move by Tesco Bank to exit the mortgage market was unsurprising. Mr Khalaf said: “It is a sign of how tough things are [and how] hard it is to make money in residential property. For Tesco, it is a significant part of the business but the core [business] is completely separate. Royal Bank and Lloyds do not have the luxury of stepping out of the [mortgage] market.”

Mr Khalaf highlighted Lloyds Banking Group as a potential suitor, noting it had shown its “willingness to buy a book” with its acquisition of the MBNA credit card business.

Tesco Personal Finance, which trades as Tesco Bank, reported a profit before tax of £198.9m for the year ended February 28, down 0.1%. The bank’s net interest margin fell to 3.8% from 3.9%, as mortgage balances climbed to £3.8 billion from £3bn.