Tesco Bank and Lloyds declined to comment.

Lloyds would pay "tens of millions of pounds" for the portfolio, Sky reported citing sources.

Tesco in May said it would stop mortgage lending at its banking business because of tough market conditions and would seek to sell its existing book of home loans.

The retailer's banking arm, which serves more than 23,000 mortgage customers, is among a number of smaller lenders that have exited or cut back on home lending in recent months amid cut-throat competition and low interest rates.

(Reporting By Lawrence White and Iain Withers)