While many people had expected today’s announcement that the UK government would not contemplate a currency union with Scotland in the event of a yes vote in September’s referendum, it has certainly been headline news. The ruling SNP government has been adamant since the referendum date was fixed that a currency union would be in the best interests of an independent Scotland and the remaining parts of the UK. The political noise from Westminster has most certainly been against such a sterling currency union for some time and today this was officially confirmed.
One of the major issues now is how this will impact the Scottish property market and the wider Scottish economy in the short to medium term. At this moment in time it appears as though the SNP has no “plan B” which is causing major concern within money markets especially with a vague threat not to take on Scotland share of UK debt if a currency union cannot be agreed.
Uncertainty breeds uncertainty
There are many questions being asked on the Internet this evening by concerned Scottish mortgage holders because, despite the SNP demanding a currency union and even now still suggesting it will happen, it has been ruled out by the Conservative Party, the Labour Party and the Liberal Democrat Party. All the bluster and bravado from Scotland will make no difference to the decision taken today which was actually taken out of the hands of politicians by a Treasury recommendation which highlighted the problems of a currency union.
Quote from PropertyForum.com : “The Select Property report entitled “The international investor’s guide to the UK property market” has cast a very interesting light on the habits of international investors with regards to UK real estate.”
The options at the moment are to take on sterling without the currency union, to look at a Scottish currency or possibly contemplate joining the euro. At this moment in time it seems there are risks with any one of these options which could lead to a higher cost of borrowing for an independent Scottish government which would be reflected in higher mortgage rates. We’ve already seen a number of businesses in Scotland putting on hold various investment programmes because of the uncertainty surrounding September’s referendum vote and this is likely to have an impact upon the Scottish property market until the picture is clear.
There are many areas of Scotland which have performed admirably over the last year or two with the likes of Edinburgh leading the way. Whether the market takes a breather in the short to medium term, to take stock of confusion surrounding the referendum, remains to be seen but it is highly unlikely we will see a raft of new real estate investment heading for Scotland, at least in the short term.
We may see more uncertainty and concern, and a rise in the so-called financial risk factor, as we approach the referendum but at this moment in time it is highly unlikely we will see any material fall in the value of Scottish real estate. In many ways the market will be in limbo until the referendum question is answered and, perhaps more importantly at this moment in time, a currency plan B is put in place by the SNP.
There were always going to be difficulties with regards to the independence referendum in Scotland whether or not it goes through. Today’s announcement that a currency union is not on the table is headline news but the reality is that it was indicated some time ago by the UK government. We may see the Scottish real estate market marking time until we have further information about a plan B but it is unlikely we’ll see any material fall in the value of Scottish property at least in the short-term.