Earlier in the year we discussed the potential impact on the Scottish residential property market following Scotland’s independence referendum. The main issue affecting the market at that time was uncertainty surrounding the issues of taxation, currency and mortgages. Today, on the date of the referendum on Scottish Independence, we look at the current position.
The outcome of today’s Referendum is unlikely to impact dramatically the purchasing decisions for those intending to remain in Scotland or buyers with strong Scottish connections, however, the recovery of Scotland’s housing market since the recession has been partly supported by buyers coming from England and further afield, moving to Scotland in search of a better quality of life and value for money. Estate Agents Savills reported that there was a 100% increase of London buyers registering with Savills to buy a Scottish property during 2013, compared with the year before.
The 2014 spring market had shown a significant increase in the number of people from England looking to purchase residential properties in Scotland. However, the uncertainty around the Independence debate and how this will affect mortgages, currency and tax in an Independent Scotland resulted in a lack of commitment from such buyers with purchasing decisions being put on hold until after the Scotland’s decision has been made.
A ‘No’ vote at today’s Referendum, this would help to spell the end of the current uncertainty and it is anticipated by real estate experts that there will be a rise in property prices due to a boost in consumer confidence in the housing market. In the event of a ‘Yes’ vote the only certainty is uncertainty particularly in relation to unanswered tax and currency issues expected to hamper any significant property price growth for a number of years.
Around 65% of residential property transactions in Scotland each year are dependent on a mortgage, therefore the lending rates applied in an Independent Scotland will continue have a big impact on the market. As a new country with a small economy, it is likely that Scotland would incur a higher credit risk, and therefore have a lower credit rating than the rest of the UK. The Scottish banking sector is likely to be perceived as more vulnerable which could result in higher funding costs.
Increased risk potentially means higher mortgage rates driving down the value of housing due to the affordability for buyers. This could lead to the Scottish residential market stalling with sellers unwilling to accept lower prices as was the case during the recent economic downturn.
In the event of a Yes vote then Scotland the controversial currency indecision can add further complexities. Scotland could create its own currency, which would provide the added complication of currency exchange rates. A comparatively weak Scottish currency could benefit foreign property buyers providing further value for money. Obviously a strong Scottish currency could have the adverse affect.
Another issue with the potential to impact on the property market would be the level of taxation in an independent Scotland, again this remains uncertain.
The strong property markets in Aberdeen and Edinburgh have been supporting Scotland’s overall property market and have boosted surrounding areas such as Tayside and Fife. The direct link between housing and jobs could provide further challenges to the housing market. According to a poll of 100 Scottish companies by the Scottish Mail on Sunday earlier in the year over a third would consider moving out of Scotland following a Yes vote which would devastate the job market and therefore housing.
Scotland’s natural scenic beauty and rich heritage are however likely to continue to pull international purchasers whatever the outcome of today’s referendum with Scotland second only to Monaco in terms of its ability to attract Ultra High Net Worth internationals. In Scotland, 31% of UHNWI buyers are from overseas and are investing predominantly in private houses and estates.
The purchase of a Scottish property by the ultra-wealthy is a luxury, and buying decisions are not expected to be particularly influenced by such political-economic factors although this is of course unclear. What is even less clear is how buyers of mainstream housing from England or abroad are likely to view Scotland in the event of a Yes vote due to the lack of information about the fundamental issues of currency, mortgages and property taxation.
Uncertainty is never good, especially where money is concerned. Independence however can not happen over night and with a decision finally made, whichever way it goes, many of the questions will need to be answered once and for all and then? Who knows. Watch this space…
If you are considering buying a property in Scotland (or any other country!), contact Worldwide Lawyers to find a lawyer to help you.