How would Scottish independence affect the housing market?


House Prices

Photo:   Stuart Caie

Scottish house prices are enjoying a strong bill of health. Over the last two years, the market’s recovery – supported by a growing economy – has seen property prices climb an average of 8.3 per cent, according to Zoopla.

Indeed, the latest figures from the ONS show that Scotland’s property prices have already surpassed their pre-financial crisis peak (June 2008) and are now at a record high.

In fact, according to Strutt & Parker, Scottish house prices are so strong that they have even outperformed England and Wales this year, rising 8 per cent year-on-year in the second quarter of 2014 to £135,000.

This growth has largely been driven by rising confidence on the back of improving financial conditions, as previously pent-up demand pours into the market. The introduction of uncertainty, though, is the very factor that could undermine such confidence: a “Yes” vote, Zoopla warns, could see this recovery reversed.

Rightmove has also released research, however, that suggests a “Yes” vote could cause house prices in England to drop too, thanks to the unease surrounding the unknown of a separated UK. The risk to Scotland’s housing market, therefore, is the same as the risk to England’s real estate: the risk of uncertainty. Could the unpredictable nature of an independent Scotland be enough to cancel out the positivity surrounding its economy? Or would the market fundamentals remain the same and support property prices in the long term?


Home Sales


There are many things needed to buy a home, from an affordable property and substantial personal funds to accessible financing and a supply of suitable housing. The final part of the formula, though, is the same thing that underpins house price growth: positive sentiment.

In the first quarter of 2014, sentiment began to weaken, thanks to the looming prospect of Thursday’s vote. Knight Frank reported that there were 26 per cent fewer prime homes listed on the market in March 2014 compared to March 2013, which the agents attributed to a “definite hestiancy” from some vendors to bring their home to market before the referendum’s result was known.

Glasgow solicitor Austin Lafferty tells The Daily Record that he has noticed a similar trend as the decisive date drew nearer.

“In the last couple of weeks, and more and more in the past few days, I and colleagues are seeing a strong trend that clients offering for property are making it a condition that the missives of the purchase are not binding until they know the outcome of the referendum. In the same way, I have clients who have offered for property, but have then withdrawn because they are afraid of a Yes vote.”

Yes Scotland dismissed the claims: “We have spoken to a number of conveyancing solicitors who confirm that the referendum is having no impact on house sales or mortgage lending and that it’s business as usual. This sounds like another scare story.”

The Better Together campaign, on the other hand, urged caution: “Every day there are new warnings about the risks that separation would bring. When people are backing out of housing deals because of the risks of separation the reality starts to hit home.”

“A vote for separation would be a vote for a leap into the unknown,” they added.


Mortgage Lending

Photo:   Ell Brown

With its own Help to Buy scheme echoing the one introduced in England, Scotland’s mortgage sector has been enjoying a flood of first-time buyers now able to climb the property ladder. In the second quarter of 2014, the Council of Mortgage Lenders registered 7,500 first-time buyer loans, 29 per cent up on the previous quarter and 23 per cent up on the same period in 2013. First-time buyers borrowed £790 million, 39 per cent up on the previous quarter and 32 per cent up on Q2 2013.

Remortgage activity edged down, due to a problem suffered by the rest of the UK, as existing home owners struggled to afford to move up the ladder or lacked the confidence to do so. Nonetheless, the CML heralded the sector’s performance as “robust”.

“The comparatively favourable conditions in the Scottish market has meant that first-time buyer numbers continue to grow to levels not seen since 2007,” commented Linda Docherty, chair of CML Scotland.

What would happen to lending conditions, though, if Scotland were to leave the UK?

The National Institute of Economic and Social Research (NIESR) estimates that an independent Scotland would have an interest rate over gilts of between 0.7-1.65% and that higher sovereign yields may push up mortgage rates. A “Yes” vote, according to NIESR, could therefore add an extra cost of £1,700 per annum to individual mortgage payments.

Further rises in bank interest rates could occur should Scotland choose not to accept its share of the national debt, adds the group, potentially leading to an increase of £5,200 per annum on the average mortgage.

Adding to the confusion is the news that the Royal Bank of Scotland might relocate to London in the event of a Yes campaign victory. The lender confirmed that it was aware of “a number of material uncertainties arising from the Scottish referendum vote which could have a bearing on the Bank’s credit ratings, and the fiscal, monetary, legal and regulatory landscape to which it is subject”.

“For this reason, RBS has undertaken contingency planning for the possible business implications of a ‘Yes’ vote,” the company announced in a statement. “As part of such contingency planning, RBS believes that it would be necessary to re-domicile the Bank’s holding company and its primary rated operating entity (The Royal Bank of Scotland plc) to England.”

Nonetheless, while debate surrounds the apparent leaking of this information by the Treasury to the media, RBS added that “the decision to re-domicile should have no impact on everyday banking services used by our customers throughout the British Isles”.


Home Building

Photo: CHDot

Over £7 billion of planned construction works could be in jeopardy if Scotland votes to leave the United Kingdom next Thursday, according to one construction specialist.

Data from Barbour ABI shows that currently £38 billion of construction projects are planned across Scotland, but with the investors funding these projects headquartered outside of Scotland, the likelihood of activity going ahead may hang in the balance, depending on Thursday’s result. On the other hand, of course, it may not.

Michael Dall, lead economist at Barbour ABI, says: “In the past 12 months, construction in Scotland has outperformed other areas of the UK, with it having the third highest volume of contract value, only behind London and the South East.

“But with around a fifth of the planned £38 billion of construction contracts in the pipeline being projects proposed by companies outside of Scotland, it’s unsure what will actually come to fruition if it’s a yes vote. In addition, there are a large number of projects in the pipeline in the renewable energy sector which is subsidised by the UK-wide renewable obligation, calling these into question.

“If Scotland does choose independence, it’s likely that negotiations between UK and Scottish Governments will be prolonged and complex, posing a potential risk to both public and private sector contracts and with the lion’s share of planned works being funded by non-Scottish businesses, the currency question will also have a direct impact.”


Photo: Alf Melin

On top of the above concerns, currency weighs the heaviest. After all, homes have to be paid for: all other parts of the housing market depend on having a dependable currency to function.

Leaders in the coalition government have repeatedly rebuked claims from Scotland’s First Minister Alex Salmond that Scotland would share the pound, if it were to separate from the UK. Inigo Mendez de Vigo, the Spanish European Affairs Minister, meanwhile, has said that an independent Scotland would have to sign up to the euro through the usual process, with accession to the EU potentially taking years – far longer than the SNP’s previous estimate of 18 months.

This uncertainty surrounding Scotland’s future is felt particularly strongly in the currency markets. Indeed, last week, when a TNS poll showed that the Yes campaign was in the lead by 1 per cent, the previously strong sterling slipped by more than 1 per cent to a 10-month low against the dollar.

“Markets hate uncertainty,” Charles Purdy, CEO of Smart Currency Exchange , tells, “especially the currency markets.”

He forecasts that in the event of a “Yes” vote, there would be “a significant period of uncertainty both north and south of the border for both sterling and whatever currency was proposed to replace it north of the border”.

“Some commentators have even suggested that sterling could depreciate by 10 per cent which would increase the cost of imports significantly – and possibly derail the UK’s economic recovery,” he warns.

“This would increase the cost of your overseas property if you have yet to buy – or increase the value of your property in sterling terms if you already own overseas.”

Final Vote

Thursday’s referendum will be a historic decision for all parts of Scotland, including the housing market. While facts and figures are being touted on both sides of the fence, the most dangerous risk posed at present is the uncertainty of not knowing the outcome.

“The property market depends on a level of confidence,” says Glasgow solicitor Austin Lafferty, “and that is what has fallen through a hole in the floor.”

It is telling that some reports from estate agents and other property professionals include their own implicit – or explicit – caution against a “Yes” vote, as the uncertainty that goes with it poses a potential obstacle for business as usual. During a time of positive growth for the housing market, with new estate agencies and property portals regularly launching across the UK, business-as-usual is better than it has been for some time.

It is no surprise, therefore, that like Zoopla, Rightmove and others, Andrew Rettie (Partner in charge of Strutt & Parker’s estate agency business in Scotland) is in favour of Britain sticking together: “I believe the Scottish house market will gain strength and momentum in the weeks and months following what I anticipate will be a victory for the Better Together campaign which will secure the United Kingdom. Confidence will return to buyers, lenders, sellers and valuers when the result is known.”

While housing on a macro level depends upon a measure of positive sentiment, though, on a local level, it also relies upon a base of smaller processes.

“The reality is that many of the matters directly impacting the property market – such as housing supply and the replacement of Stamp Duty – are already devolved or set at a local level,” David Marshall, Business Development Manager with ESPC, tells

“The nature of political campaigns is that a lot of time can be spent with each side focussing on the negative aspects of the opposition’s views but Scotland is in the fortunate position that the economy has been improving steadily.”

Indeed, those north of the border are recovering from the recession as much as those south of it: despite the headwinds of currency speculation and the potential relocation of RBS, house prices are up, lending is robust and construction is outperforming other areas of the UK. 

“The country is in a position to prosper economically,” adds Marshall, “both as part of the union, or indeed independently.”

It is true that, whichever way the vote swings, confidence will return once the result is known. While the nation lines up to choose “Yes” or “No” on Thursday, the question for the property market is: how long will it take?