Mortgage lenders are considering changing the way they lend to prospective homeowners in Scotland. Independence could mean borrowers could be under tighter scrutiny when being offered loans and be required to place larger deposits or take tougher tests.
Banks also fear the risks that come with the possible change in currency. If Scottish homeowners have to repay loans in foreign currency, they could face higher costs and possible default. However, if an independent Scotland kept the pound, it might have to follow interest rates set by what’s left of the UK. The Scots have used a form of the pound since the 12th Century.
If the referendum passes, some mortgage brokers predict that many UK-based financial institutions will exit the Scottish market, therefore reducing competition and allowing rates to rise. RBS and Lloyds have already made it clear that a Yes vote will see them relocating South. To add to the pressure on home buyers and originators, others say the uncertainty that surrounds the regulatory and tax environment could put a complete hold on lending.
Meanwhile, house sales in Scotland reached a six-year high with a 0.2% monthly growth in July, according to the latest index from Acadata Ltd., a London-based research company. There were 9,285 transactions in July, climbing 5% up from June to reach the highest monthly total since July 2008.
More than half of Scotland experienced prices drop in July and home values are still 0.6% off the 2008 peak while sales remained 30% lower than pre-recession levels. The median Scottish house price is £135,000, or approximately $220,000.
Uncertainty looms in Scotland’s mortgage market, as the Scots will vote tomorrow whether or not to split from the UK. Industry experts say major mortgage companies are prepping to restrict lending in the event of a “Yes” vote. Lenders are concerned with currency, exchange rates, house prices and property taxation.