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Financial Mirror (Cyprus) - - FRONT PAGE -

With Scot­land mak­ing the head­lines on a daily ba­sis this week due to the cru­cial in­de­pen­dence vote on Thurs­day, it is no sur­prise that prop­erty prices are a fo­cal point. A Yes vote in this week’s Scot­tish ref­er­en­dum would jeop­ar­dise the UK’s hous­ing mar­ket re­cov­ery, ac­cord­ing to the lat­est in­dex re­port from Right­move.

It goes as far as say­ing that the UK’s hous­ing mar­ket re­cov­ery, after a year of height­ened con­sumer con­fi­dence and the health­i­est trans­ac­tions lev­els seen since the pre-cri­sis peak, could be put into re­verse.

Right­move an­a­lysts are fore­cast­ing a damp­en­ing of house prices should Scot­land break away from the 300 year old union. “Even the very de­bate around Scot­tish in­de­pen­dence and pos­si­ble im­pli­ca­tions for the eco­nomic out­look for the rest of the UK could cause un­cer­tainty in the minds of po­ten­tial homem­o­vers con­tem­plat­ing a large long term fi­nan­cial com­mit­ment,” said Right­move hous­ing an­a­lyst Miles Ship­side.

He claims that spec­u­la­tion amongst eco­nomic fore­cast­ers on top­ics such as up­ward pres­sure on in­ter­est rates, avail­abil­ity of whole­sale fund­ing for lenders, and the ge­o­graphic lo­ca­tion of ma­jor fi­nan­cial in­sti­tu­tions are po­ten­tially desta­bil­is­ing in­flu­ences on the prop­erty mar­ket. Mort­gage ex­perts have waded in, say­ing that hun­dreds of thou­sands of Scot­tish home own­ers could see their mort­gage re­pay­ments in­creas­ing far beyond their wages if an in­de­pen­dent Scot­land is forced to adopt a for­eign cur­rency.

It is claimed that lenders may refuse to switch cur­rent loans to a new cur­rency and will in­stead keep them in ster­ling. This would leave Scot­land’s 800,000 home own­ers at the mercy of cur­rency fluc­tu­a­tions that could lead to higher re­pay­ments and even neg­a­tive eq­uity on their homes.

Ac­cord­ing to Ray Boulger, from mort­gage ad­viser John Char­col, lenders did not have clauses in their terms and con­di­tions that would al­low them to change the cur­rency of ex­ist­ing loans. This in­cludes the UK’s big­gest banks Lloyds Bank­ing Group, Royal Bank of Scot­land and Bar­clays. Lloyds and RBS have al­ready in­di­cated that they will move their head­quar­ters to London if there is in­de­pen­dence.

Boulger claims that if the pound strength­ened against the new Scot­tish cur­rency, bor­row­ers’ wages would not stretch as far, send­ing their re­pay­ments shoot­ing up and in­creas­ing the mort­gage rel­a­tive to the prop­erty’s value.

A flat in Scot­land worth £100,000, for ex­am­ple, would be worth just £80,000 if the lo­cal cur­rency fell 20% against the pound. Against a mort­gage of £75,000, which would still be priced in ster­ling, the buyer’s eq­uity tied up in their prop­erty would fall from £25,000 to just £5,000.

“Most Scots would end up with a mort­gage on a Scot­tish prop­erty in a for­eign cur­rency. Th­ese are amongst the riski­est mort­gage prod­ucts avail­able be­cause of the im­pact that cur­rency fluc­tu­a­tions can have on bor­row­ers’ eq­uity and their abil­ity to carry on meet­ing the re­pay­ments,” said Boulger.

How­ever, cur­rency fluc­tu­a­tions can swing ei­ther way, so it is pos­si­ble that if there is a Scot­tish pound it could strengthen rel­a­tive to the English pound, putting Scot­tish bor­row­ers in a favourable po­si­tion.

Ac­cord­ing to Boulger, most lenders would have no in­ter­est in is­su­ing for­eign cur­rency mort­gages, just as they don’t lend to other over­seas bor­row­ers in France or Spain. He be­lieves that for Scot­tish bor­row­ers the choice of lenders will be far fewer and their op­tions will be­come more ex­pen­sive as a re­sult.

The Coun­cil of Mort­gage Lenders has so far not com­mented on which lenders are likely to carry on op­er­at­ing in Scot­land.

Ac­cord­ing to David Holling­worth, a bro­ker with London and Coun­try, if banks and fi­nan­cial in­sti­tu­tions move staff out of Scot­land there could be a flood of prop­er­ties com­ing onto the mar­ket and fewer buy­ers, drag­ging prices down.

“Fewer work­ers means fewer buy­ers, which will im­pact on what peo­ple are pre­pared to pay for a prop­erty,” he said.

But he had not taken into ac­count the new jobs that would be cre­ated. There are re­ports of some buy­ers in Ed­in­burgh in­sist­ing on a clause in their mort­gage con­tract stat­ing they will only pay the agreed price if Scot­land votes against in­de­pen­dence. But peo­ple in Scot­land are much more re­laxed about it.

The most re­cent poll shows that a third of peo­ple think house prices in Scot­land will fall if the coun­try be­comes in­de­pen­dent while about the same num­ber be­lieve prices will rise.

The data shows that 32% of peo­ple be­lieve in­de­pen­dence could cause the value of their house to fall, 31% think it will lead to a price in­crease, 24% said they did not know, while 13% said they did not be­lieve Scot­land would vote to leave the union.

Almost half of those sur­veyed, 46% said they think in­de­pen­dence would make it harder to get a mort­gage, 19% said it would be eas­ier and 35% said it would be no dif­fer­ent. De­spite un­cer­tainty over the re­sult of the ref­er­en­dum and the po­ten­tial rise or fall in prop­erty prices, 59% said that the ref­er­en­dum has no in­flu­ence on their decision to buy or sell at the mo­ment.

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