Independent Scotland

Scottish homeowners have been warned that a “Yes” vote for independence on September 18th will mean that Scotland would possibly have to create a brand new currency. This would have dramatic consequences for their monthly mortgage repayments.

Although the terms and conditions would need to stay the same, regardless of the lender, the payments would need to be made in the new Scottish currency and would therefore be subject to Foreign exchange rates.

Based on the assumption that a new Scottish currency, if allowed to float freely on international money markets, would depreciate by around 10pc immediately against the pound, that could see the proportion of mortgage payments as a percentage of income in Scotland jump dramatically.

In the early days, it is expected that a new Scottish currency would certainly be weaker than sterling and longer-term interest rates in Scotland would have to be higher than in the UK.

Anyway, here’s the maths…… Experts say that a new currency is likely to fall in value by about 10% immediately against the pound. In that example, a Scottish homeowner with a £1,000 monthly mortgage payment would suddenly have to find an additional £100 overnight just to cover the short-term cost of buying sterling to make their payment.

Most mortgage lenders operating in Scotland are based in England, so UK rules apply. There are still a couple of small Scottish Independent Building Societies, but most have been swallowed up by Nationwide Building Society – again UK rules apply. It is unclear whether the UK banks would want to continue to lend in Scotland, or how they would be regulated. So far they are saying nothing on the subject.

Apparently Scottish homeowners would also be affected by any changes to the Bank of England increasing interest rates, which Governor Mark Carney told the UK Trade Unions today, is likely to happen next year. I can’t work out how this is the case, or if it’s a bit of Yes / No propaganda.

So, my advice to any mortgage holder eligible to vote? No idea!!