Scottish homeowners face mortgage meltdown if Yes campaign wins

Although in theory an independent Scotland would have 18 months to negotiate an amicable and orderly divorce from the rest of the UK, there is every possibility that such a separation would be far more acrimonious.

That would certainly be the case if a Yes vote – as predicted by a YouGov opinion poll for The Sunday Times over the weekend – triggered a political crisis in Westminster. In these circumstances there is every chance that a nationalist Scottish government under Salmond would be forced to move quickly to cobble together a new currency and central bank.

Such a move would leave many Scottish homeowners bobbing around like tiny corks on the international currency ocean.

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.

For example, a Scottish homeowner with a £1,000 monthly mortgage payment could suddenly have to find an additional £100 overnight just to cover the short-term cost of buying sterling.

“It is probably a position that most Scottish homeowners would never have expected to be in,” said Howard Archer, chief UK and European economist at IHS Global Insight.

“In the early days, at least, 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.”

There is also the added uncertainty of whether banks would want to continue lending in the Scottish market until a new independent government, if a Yes vote succeeds, negotiates its share of the UK’s public debt and decides on how financial services should be regulated north of the border.

At present, mortgage lending in the UK is regulated by the Financial Conduct Authority, but how such services would be overseen in an independent Scotland is an unknown.

“For new homebuyers, you may find that some lenders just won’t offer mortgages in Scotland any more. There is a high chance that smaller lenders would review their position in an independent Scotland,” said Hollingworth.

Many banks have already indicated that a Yes vote would prompt them to re-evaluate their businesses in Scotland and first-time buyers could find themselves in a situation where it is virtually impossible initially to obtain a mortgage denominated in a new Scottish currency.

They would also lose access to the existing Government-backed mortgage guarantees under the Help to Buy scheme and those Scots who have already bought a house using the programme – which is underwritten by the UK taxpayer – would be left in the extraordinary position of owing a foreign government for part of their home.

Big banks are quite understandably horrified by the prospect of Scotland breaking away from the union and although none has commented directly on currency risks that could arise from a Yes vote, they are clearly concerned by the possible financial impact on their businesses.

The Australian owners of Glasgow-based Clydesdale said last month that they were making contingency plans and warned that independence “may give rise to significant additional costs and risks”.

Writing in The Daily Telegraph last month, Douglas Flint, chairman of HSBC, also warned that Scotland faces a flight of capital should it break away, and he stressed that the country derives its strength from being part of the UK.

It is difficult to imagine how major banks such as HSBC would adjust their lending criteria, especially for first-time buyers in Scotland, should independence – with its added economic and political risks – become a reality in 10 days’ time.

Furthermore, how banks would account for home and personal loan defaults on existing sterling- denominated debts north of the border should Scotland have to create a new currency is entirely uncharted territory. A spokesman for the Royal Bank of Scotland declined to comment on the issue when called and, given the sudden turnaround in opinion polls in favour of Salmond in recent weeks, lenders may not have an answer.

So, as Scottish voters get ready to decide on the fate of our historic Union there is much more at stake than mere nationalistic pride.

The Scots are betting the roofs over their heads on the result.

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