I have been mostly unconcerned about the Scottish referendum for most the last year...until this weekend. The release of a poll that for the first time puts the Yes camp ahead has now sent a shiver down my spine to be honest.
I do not have a large swathe of family and friends north of the border that I might be concerned about the need to get a visa to visit. To be fair, whilst I do have an interest in property there it is very small; so my concern is not as directly self-interested as you might think.
My concerns largely boil down to the potential consequences of Scotland exiting the UK - intended or otherwise.
Following a Yes vote, the whole currency debate as is the focus in this feature today could lead to an effective devaluation of property in Scotland by some 10% immediately after the referendum due to a currency write down. That would wipe out 10% of the value for any property owner overnight in ten days’ time. However, is that where it would end?
No, I don't think it is frankly.
A 10% reduction in the in value would equate to something like a 40% equity reduction for someone with a 75% loan-to-value (LTV) mortgage. This is the downside of leverage, where losses to capital can be magnified resulting from borrowing. Aside from an unpleasant loss of capital on paper, as this is only realised if we sell, is a far more real potential to lose the existing mortgage or remortgage terms that we currently have. No more 75% LTV products would be available to us as we would have insufficient equity – we would be hunting for 83%+ LTV products instead…that or having to put our hands in our pockets to top up the loan. Ouch!
A devolved Scotland would probably not attract the same lending criteria as the whole of the UK in my opinion and I appreciate that the Yes camp claim this not to be the case but common sense suggests otherwise. No currency, no ability to print more Government debt, potential UK debt default and a smaller economy to me suggest a lesser credit rating and therefore higher interest rates. The higher interest rates would inevitably filter down into the mortgage market and result in less affordable mortgages – pushing up the cost of the same loan than before the demerger.
So, now we have an equity write down and probably a higher cost of borrowing on that same debt…double ouch!!
Would it end there? My view is again probably not.
For example, should Scotland decide to go it alone, then we will also get calls from other parts of the UK to follow suit and not just the obvious like Wales and Northern Ireland either – Cornwall might be another candidate for independence among others. This could lead to a further break-up of the rest of the UK, with dire consequences for the economic, political and social standing of the Union. More separatist movements would lead to more instability and more dire consequences for the rest of us leading to a negative impact of our south of the border investments over time too.
The wider issues are far more complex than the scope of this modest insight but these are just three of the potential knock on effects that I can envisage resulting from a Yes vote result. The net result can hardly be encouraging…to either the Scots or the rest of the UK if these scenarios play out as highlighted. This morning I spent a while reading what The Market Oracle had to say on the subject…a long, sobering yet very worthwhile insight into some of the potential direct and indirect consequences is here (Scottish house prices are addressed about two-thirds down):
http://www.marketoracle.co.uk/Article47228.html
I can see why many in Scotland may be tempted to vote Yes, aside from the identity and self-determination argument, also the potential for some to believe they will be better off by redistributing their own taxes and oil sea revenue but at what cost? Certainly, by the look of this examination, anyone with any form of savings or other financial assets, including property, would expect to be worse off for quite some time.
I am British and English but want us to remain Better Together guys…so, please say NO!
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