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Ask the Experts: How would Scottish independence affect mortgages?

by: John Penn
  • 16/09/2014
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Our Ask the Experts column is your chance to put industry figures on the spot. In this edition John Penn, head of mortgage proposition at Intelliflo, answers your question.

Q: With the Scottish independence vote now upon us, what impact would a ‘yes’ vote have on the mortgage market?

A: As the Scottish referendum approaches, how mortgages north of the border might be affected should the vote be in favour of independence has become a hot topic of speculation.

Of course no-one really knows what will happen until the currency debate has been settled. The worry is that should there be no monetary union with the rest of the UK if Scotland opts to go it alone – and Westminster remains adamant there won’t be – that interest rates are bound to rise in Scotland, pushing up the cost of mortgages.

In spite of the uncertainty, the Scottish government is confident that there will be little change should the vote be in favour of independence. On its website it states: “In an independent Scotland mortgage rates will continue to be based on the interest rate set by the Bank of England, which in a sterling area will be exactly the same for Scotland as for the rest of the UK, just as it is now.”

The pro-independence lobby also believe there’s no need for panic; it’s expected to be 18 months before any final split takes effect. However, some pundits believe that the impact of a yes vote could result in changes to the political structure in Westminster and this could lead to a need for rapid decisions to be taken, particularly regarding currency. Uncertainty is never good, particularly where money is concerned, so 18 months may end up looking like a bit of a luxury.

Another alternative is for a new currency to be created. If this happens, there is real potential for mortgage costs in Scotland to rise, due to currency fluctuations.

Existing loans have been calculated in sterling so if payments have to be made in a new currency this would impact on overall cost. Some reports speculate that a new currency when floated on international markets would automatically be down on the value of the pound, perhaps by around 10%. If so, such a difference would immediately be felt in the pockets of Scottish mortgage holders.

ask-the-expertsThe other issue is around securing new mortgages. It’s possible that there would be a fall in the number of lenders based in Scotland, and this would reduce competition and restrict the number of products which may lead to higher mortgage rates. Loans from lenders based south of the border could be classed as foreign currency loans with restricted criteria plus higher rates and fees.

Until decisions are taken as to exactly which currency an independent Scotland would use, just how easy will it be to secure new mortgages for property in Scotland?

Even where mortgages are offered, Scottish-based borrowers could be reluctant to commit to contracts that may well be affected by currency fluctuations further down the line. This raises the risk of the Scottish property market stalling, which in turn could have a knock on effect for the construction industry.

Additionally, people south of the border with a property in Scotland may decide to sell due to the uncertainty. If there were enough of them, it could lead to a reduction in house prices, which could have a good or bad effect, depending on your situation.

Without a doubt the prospect of a yes vote on the September 18 is unsettling, although how long it would actually take to sort out the situation is debatable. It could be that short-term pain will not affect long-term gain for the Scottish people and this is certainly what the Scottish government believes.

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