The impact of Scottish Independence on the property market

The question of whether Scotland will remain as part of the United Kingdom, following the Referendum on 18 September this year, has the potential to impact on the Scottish residential property market.

Although unlikely to impact on purchasing decisions for those buying from within Scotland, what about people coming to Scotland from south of the border or from further a field?

The recovery of Scotland’s housing market since the recession has been partly supported by buyers coming from England who are 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. There are however undertones of uncertainty around the Independence debate and how this will affect mortgages, currency and tax is now becoming a concern for some.

Around 65% of residential property transactions in Scotland each year are dependent on a mortgage, therefore the lending rates applied in an Independent Scotland would 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 (and if Scotland does not adopt Pound Sterling) then Scotland could create its own currency, which would provide the added complication of currency exchange rates. A comparatively weak Scottish currency could however benefit international property buyers adding value for money. Clearly though 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. In addition the changes to Stamp Duty, which will be replaced by the Land and Building Transaction Tax regardless of the outcome of the Referendum, will need to be considered.

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 buoyancy of a housing market is directly related to the job market and whether or not an independent Scotland would have a negative impact on Edinburgh’s position in financial services or on Aberdeen’s energy sector remains to be seen. This is likely to depend on whether or not the big players in the leading service industries pull their head offices out of Scotland as threatened by Standard Life.

Scotland’s natural scenic beauty, rich heritage and quality of life are likely to remain a pull factor for many international purchasers whatever the outcome of this September’s referendum. Research which analysed the direct real estate holdings of the top tier of Ultra High Net Worth Individuals (UHNWI) from across the globe with net assets in excess of US$30m has revealed that Scotland is second only to Monaco in terms of its ability to attract 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 unlikely to be particularly influenced by political-economic factors. What is 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.

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