The Scottish Question & The Effect On Mortgages
11th September 2014
In recent days there really has been a sudden, although not altogether unexpected, shift in the intensity of the whole Scottish question.
As the main party leaders started to panic and all headed oop North to try to plead with the average Scot after the polls over the weekend put the yes vote ahead, I get a sense that they are not the only ones who did not expect to be in this situation.
I don’t actually believe Salmond really set out to win, just to get close and get a whole set of new powers. After all, I am not sure he has a clue what to do if the yes vote actually win!
With the latest news that top banks such as RBS, Lloyds and Clydesdale, plus other large companies like Standard Life will up sticks to London if the yes triumph, today’s polls seem to reflect the fact that, whether this is all scaremongering or not, it is doing the trick. It certainly seemed to be a case of Black Wednesday for the yes vote yesterday.
There is also another issue that is lurking in the shadows. The fact that all of this breeds uncertainty in the money markets. Whilst we have already seen the Pound weaken and the aforementioned banking institutions share prices take a tumble, the knock on effect of this uncertainty would probably hit mortgage availability and pricing for us all.
Undoubtedly those in Scotland would suffer most as many mortgage questions would surface pretty quickly. Who regulates them, how does a lender repossess if they need to and what are the new sets of rules?
This is all quite apart from the fact that an English bank could suddenly find itself lending in one currency on a property in another country with potentially a different currency.
Although this did happen in the euro zone the difference was there was no actual cross border lending and they had a darn site longer than a few weeks to think about it!
This would in effect mean that most Scottish borrowers would have a foreign currency mortgage as lenders are unlikely to shift the loan out of Sterling. Therefore borrowers would be at the risk of currency fluctuations which could see mortgage balances increase relative to values leading to less or even negative equity.
It could of course work the other way but with large employers leaving Scotland, even if it is just a case of “Brass Plaques” rather than wholesale staff relocation’s, house prices could also take a hit. As reported in some sections of the press there is already talk that some buyers have a clause in their contract that they will only actually pay the agreed price in Scotland if the no vote is successful.
Another point, is that those with mortgages in sterling would also be at the mercy of the Bank of England in any case, especially when they begin to increase rates.
When all is said and done, historically speaking lenders have always taken the same approach in the face of uncertainty; they pull out. So many lenders could pull out of lending in Scotland for the time being until things are more settled following a yes vote.
The ripple effect of all this means the cost of funds for some of the main banks going through technical relocation’s, as well as generally, could rise which would be passed on to the borrower in the form of higher mortgage rates, especially if bond rates are effected.
In other words, a Scottish yes does not just effect the Scots, but the potential of years of turmoil ahead which spooks the markets, (not many investors like uncertainty), could make things more uncomfortable for us all.
The good news however, is that if you take the Scottish stats out of the UK equation, the rest of us will see an increase in male life expectancy by 10 weeks on average and 20cms less average rainfall. Unfortunately, it is an awful long time since the new UK won Wimbledon!
With all this in mind, it wouldn’t surprise me if Salmond actually calms it down a notch in the final days anyway. A yes vote and a year of difficulty and accusations of no real plan could mean the end of his tenure relatively quickly. A close no however, means he can carry on for years doing his thing and basking in the glory of all the new powers he has won for Scotland.
It will be very interesting however and quite a bit of fun, to see how Scotland does cope with a successful yes vote and will no doubt be watched avidly by all of us to see how it all works, giving us all much to write about! At least we wouldn’t have to listen to Scottish football league results anymore!
No doubt, it will be a close run thing and whilst national pride is not to be sniffed at, after all is said and done a polite no thank you may be the better option.
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Andrew Montlake, Director and Spokesperson for Coreco, gives his honest and forthright views on the mortgage market, economy and all things property related. Monty was voted "Mortgage Personality of the year 2008", "Best Press Spokesperson" in 2011 and is the current holder of the British Mortgage Awards “Best Marketeer” title. Expect expert analysis, delivered in a down to earth style with a side helping of exuberance.