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Newcastle and Manchester mutuals merger: What members need to know

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
08/06/2023

The merger of the building societies has now officially been given the green light. If you’re one of the 11,000 Manchester customers transferring to Newcastle in July, here’s what you need to know.

The two mutuals have been given the go-ahead to merge by the Prudential Regulation Authority (PRA), with the move taking effect from 1 July 2023.

It follows an announcement made in March as the societies entered a legally binding agreement whereby Manchester’s engagements would be transferred to Newcastle.

Manchester has 11,000 members – split between 1,600 borrowers and 9,200 savers – and £200m in assets. As of 31 December 2022, it employed 44 people and had no branch network as it only dealt with customers via phone and post, with no internet capability.

Meanwhile, Newcastle has 345,000 members and is the eighth largest building society in the UK. It operates via 31 branches, has £5.3bn in total assets and employs 1,400 staff. 

One of the reasons behind the merger was that the Manchester board believed Newcastle could offer “an excellent range of mortgages and savings products” through phone and post, “as well as through branches and on the internet”.

A statement read: “The Manchester board’s current projection is that the society would, as a standalone entity, have recurring losses which will deplete capital reserves each year. Becoming part of a larger, financially robust society will offer its members a range of products and services it is unable to match as a standalone entity, whilst providing staff at the Manchester with the opportunity to further their careers as a valued and continuing part of a larger organisation. As a result, both societies have agreed to merge.”

Newcastle Building Society will be the name of the merged society after the Manchester members transfer to become Newcastle members.

What will happen now for Manchester members?

The societies confirmed that customers don’t need to do anything or take any action in relation to the merger.

However, here’s what savers and borrowers need to know:

Savers

As now, once savers are moved to Newcastle, they will continue to have up to £85,000 of their cash (£170,000 for joint accounts) protected under the Financial Services Compensation Scheme (FSCS).

From 1 July, all savings accounts with the Manchester will be transferred to Newcastle BS where they will continue to operate as closed accounts. This means that no new accounts under Manchester can be opened, but savers can add and withdraw their cash from existing products, as permitted under the original terms.

Savings rates will not change for those existing products as part of the merger, but in future, they may be subject to interest rate changes.

For savers with fixed term deals, nothing changes during the contract period.

Savers will be able to open and take out new savings products with Newcastle.

Mortgage borrowers

From 1 July, mortgages with the Manchester BS will be transferred to Newcastle BS, with interest rates remaining the same or improving for a period.

Changes to the interest rates (and the amount you pay) come into effect on the ‘switch date’ – the first day of the second month following the date of the merger – which is expected to be on 1 September 2023.

This is considered to be the “earliest practicable date on which the societies consider it to be reasonably practicable for the change to be made due to operational and system constraints”, they said.

Where a borrower is on a Manchester Standard Variable Rate (SVR) – currently 7.39% – they will pay the Newcastle SVR (currently 5.19%, rising to 5.94% on 1 July) from the switch date.

“The Newcastle SVR will then continue to apply, notwithstanding any change in the Newcastle SVR from time to time after the switch date,” the mutuals confirmed.

Where a Manchester borrower is on a rate that is linked to the Manchester SVR – by way of a discount or increase to the Manchester SVR – then from the switch date, the Manchester borrower’s rate will be linked to the Newcastle SVR instead, with the same percentage discount or increase applied.

Meanwhile, where a Manchester borrower is on a variable interest rate which isn’t linked to either the Manchester SVR or an external reference rate such as Bank of England base rate, then there are two different points to note:

  • If your interest rate is equal to or higher than the Newcastle SVR immediately prior to 1 July, the interest rate applicable will be the Newcastle SVR from 1 September.
  • If your interest rate is lower than the Newcastle SVR immediately before 1 July, the interest rate applicable will be the Newcastle SVR less the discount amount from 1 September.

They gave this worked example:

A Manchester borrower paying interest at 4.89% immediately prior to the effective date (1 July) – assuming such rate is lower than the Newcastle SVR immediately prior to this – will from 1 September pay interest at a rate which is equal to a 0.30% discount to the Newcastle SVR. This is because the 4.89% represented a rate which was equal to a 0.30% discount to the Newcastle SVR (assuming the Newcastle SVR remains at 5.19% immediately prior to the effective date). If after 1 September the Newcastle SVR increases to 5.94% then the Manchester borrower would pay a rate of 5.64% (a discount of 0.30% to the new Newcastle SVR of 5.94%).

For those whose interest rate tracks LIBOR (the London Interbank Offered Rate), following the merger, the interest rate will be calculated by reference to the Bank of England base rate instead of LIBOR from 1 September.

For borrowers on a fixed rate mortgage, there’s no change but when it comes to the term or contract end, the mortgage interest rate will become (or will be linked to) either the Newcastle SVR or the Bank of England base rate, depending on the terms and conditions of the mortgage account.

“There is no guarantee as to what Newcastle SVR will be in the future,” they added.