With the Scottish referendum just hours away, lots of experts are making varying claims about the effect this vote could have on the UK housing market. Some predict it could have drastic effects if the Scottish public vote “yes.” That is because banks have been handing out mortgages to Scottish residents in pounds sterling. A “yes” vote could mean that Scotland switches to a new currency, and experts think that the new currency could soon depreciate.
One of the golden rules of money-lending is that you never release funds to someone who looks to pay you back in a different currency. That rule exists due to the unstable nature of the currency market. If Scotland were to switch, and their new currency becomes less valuable, banks and other lenders could lose out considerably. Even so, there is a solution to the problem as we will explain in just a moment.
If banks want to ensure their return is kept at a suitable level, they simply have no choice but to re-denominate every single mortgage in Scotland. The only problem with that idea is that it has never been done before, and some experts questions the legality of such a move. Due to that fact, we’re likely to see mortgage lenders freeze any further borrowing to Scottish people if they vote “yes” in the referendum.
While freezing lending is just a precaution to be used until the market has been assessed, it could have a significant impact on anyone trying to buy a home in Scotland. Residents will have no choice but to borrow money from smaller, Scottish-owned banking institutions. Some major banks look set to continue lending regardless of the outcome. However, they are likely to increase deposit amounts and decrease borrowing to help cover their backs. Some English building societies may also continue to provide mortgages in Scotland.
A few of the experts we spoke to are a little more positive about the referendum vote. Some even suggested the news about mortgage providers freezing borrowing could be politically influenced. The UK government is fighting tooth and nail to win the Scottish public round, and so it wouldn’t surprise anyone if they’re trying to inflate the severity of this issue. One expert even called the news “scaremongering.”
So, is this something we need to worry about? Well, like most of the issues concerning this vote, we simply won’t know until the outcome has been announced. At the end of the day, people in Scotland are going to find themselves in a different situation if their vote “yes.” However, nobody can know for sure if the new reality will be better or worse than the one they face today.
The Scottish government has been forthright in coming out and saying they believe the impact on average families in their nation will be minimal. As have numerous other pundits in the field. Even if Scottish people vote “yes” in a few hours time, it is expected that a full split from the UK would not occur for at least another 18 months.