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What would an Independent Scotland Mean for Mortgages?

Written by Sam Jones on 17 February 2014.

The battle for Scotland is well underway with a referendum on its future set for September. The last referendum was 35 years ago and once again Scots will have a vote on whether to remain part of the UK or become an independent country.

The key battleground has been over currency and whether an independent Scotland could keep the pound, whether it has to set up its own currency or whether it would be allowed to adopt the Euro - less likley given Barroso's comments yesterday. For both mortgage lenders and brokers with Scottish clients, the key issue will be the currency and whether any of our systems are set up offer deals in dual currencies

It is no surprise therefore that the Scottish National Party leader and first minister Alex Salmond wants to keep the pound for Scotland.

Bank of England Governor Mark Carney said Scotland could only keep the pound if its shared tax raising powers with the rest of the UK.

Last week Chancellor George Osborne, with cross-party support, said Scotland would not be able to keep the pound.

The currency is key but there are other issues at stake too. The European Commission says Scotland would not be able to join the EU automatically and it would be very difficult for it to do so.

A wide variety of businesses have started warning about the impact on profits and service from food suppliers to asset managers.

What would it mean for mortgages?

Business secretary Vince Cable says the Royal Bank of Scotland would relocate to London from Edinburgh along with other banks.

Questions remain about whether they would have the pound, the euro or an independent Scottish currency.

Banks and building societies say they would need to review their lending in Scotland in the wake of an independence vote.

The economies of scale for lending across one country may be lost if there is a new currency.
Even with the same currencies the different rules and regulations from two countries may force lenders to pull out.

The truth is that nobody knows the exact impact and many lenders are not addressing the matter until a vote has been cast.

Firms are notoriously wary of getting involved in heated political debate for fear of being caught in the crossfire.

RBS chief executive Ross McEwan skillfully dodged questions on its position when asked at its results last month.

However, business value certainty and there are clearly many unknowns about an independent Scotland.

Interest rates?

As well as the pound the currency would also have a big impact on who sets interest rates.

The SNP want the Bank of England to keep setting rates for both Scotland and the rest of the UK with one Scottish representative on the monetary policy committee.

The Treasury rejects this move, claiming interest rates would be set for the rest of the UK alone with no regard for Scotland.

This could create problem in addressing key economic problems such as housing bubbles or cheap loans.

Scotland could be open to cheaper or more expensive mortgage rates than is optimal.

Rates would also be significantly affected by how boteh countries manage their debt.

Fixed rate mortgages are closely connected to the price of gilts – Government debt.

So Scottish mortgages could be linked to Scottish debt and market confidence in the ability of Scotland to pay its debts will be crucial.

Smaller nations usually have higher debt costs, which could push up mortgage rates.

Then again, the rest of the UK and an independent Scotland could be viewed as highly integrated with minimal impact.

The Treasury’s gambit to ban an independent Scotland from using the pound has raised the stakes but the future remains unclear.

As both sides make predictions the only certainty is the vote leaves a lot of unknowns for Scottish mortgages over the next decade.

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