Scotland independence warning for homeowners: New currency could hurt mortgages payments

Andrew Marr: ‘Nothing will happen’ with Scottish independence

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Scotland’s First Minister Nicola Sturgeon has vowed to press ahead with a second referendum on Scottish independence should the ruling SNP win a majority in the upcoming Scottish election on May 6. But the SNP’s push for a break from the rest of the UK has come under furious attack, with experts warning Scotland could be plunged into a financial black hole in light of the huge budget deficit the country was running – even before the coronavirus pandemic. Now John Ferry, a contributing editor for the pro-Union think tank Three Islands, has warned Scottish people could struggle to pay their monthly mortgage on the properties if the SNP is successful in its quest for independence.

The latest Scottish household survey estimated 720,000 households containing 1.94 million people in the country have mortgages.

But Mr Ferry has warned mortgage contracts require payments in Sterling, which would immediately trigger a “foreign exchange risk to manage as the value of incomes fluctuate relative to mortgage liabilities”.

He added a “free floating new currency” would most likely devalue relative to the pound that could leave “households unable to afford their monthly mortgage payments”.

Writing for The Spectator, Mr Ferry said “The SNP plan has been heavily criticised by economists as likely to lead to an economic crisis. Salmond is right to reject it. But that does not make his plan any better.

“Having a new Scottish currency in play for day one or near day one of independence creates a raft of other risks and uncertainties.

Take just one issue: mortgages. The latest official survey of Scottish households estimates 720,000 households in Scotland have mortgages.

“Those mortgage contracts require repayment in sterling, which means households would suddenly have foreign exchange risk to manage as the value of incomes fluctuate relative to mortgage liabilities.

“A free floating new currency would almost certainly devalue relative to the pound in reflection of Scotland’s stand-alone economic fundamentals and start-up risks.

“This could leave households unable to afford their monthly mortgage payments.”

Mr Ferry warned banks may not offer a viable solution to this arising problem as “no advanced economy with mass consumer debt and mass mortgage markets has broken away from its national currency base before”.

He added: “Ah, you might think, but surely the banks will offer to switch those mortgages to new contracts referencing the new currency, with houses revalued in that new currency? Maybe. Or maybe not.

“We don’t know. There are no case studies on this.

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“No advanced economy with mass consumer debt and mass mortgage markets has broken away from its national currency base before.

“Scots, and their debts, would be guinea pigs in an extraordinary economic experiment.”

Mr Ferry also warned there would be many more problems beyond this, particularly around imports/exports and the wider Scottish economy, which could be plunged into a huge crisis following independence.

He continued: “Around 60 per cent of Scottish exports go to the rest of the UK.

“Scottish exporters and importers to the remaining UK would have foreign exchange risk and currency transaction fees to deal with.

“And at the macro level the new state would have to establish trust and credibility in its new currency if it is to sell bonds in it.

“Extreme fiscal prudence would be required. With Scotland running a pre-coronavirus implicit budget deficit of 8.6 percent of GDP (Scotland’s current deficit is estimated at over 25 per cent of GDP), that would mean a ruthless austerity programme.”

The SNP and Ms Sturgeon are continuing their pursuit of a second referendum on Scottish independence, but have come under huge attack for doing so during the ongoing coronavirus pandemic.

Scotland’s First Minister has suggested a referendum could be held as early as this year.

But Prime Minister Boris Johnson has refused to refused to transfer the relevant powers to Holyrood to enable this to happen, insisting the first referendum from 2014 was a “once in a generation event”.

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