Marketwatch: Scotch mist

As the yes voters in Scotland contemplate triumph next week, the questions over the implications for mortgages start to stack up


There is only one story in the news this week and it is all about Scotland. As the main party leaders start to panic and head oop north, I get a sense they are not the only ones who did not expect to be in this situation.

I do not believe Scottish first minister Alex Salmond really set out to win, just to get close and get a whole set of new powers. After all, I am not sure he has a clue what to do if the yes vote  wins.

Top banks such as Royal Bank of Scotland, Lloyds and Clydesdale, plus other large companies like Standard Life, will up sticks to London if the yes vote triumphs, even if it is a “Brass Plaque” move. Recent polls seem to reflect the fact that, whether or not this is all scaremongering, it is doing the trick.  While we have already seen the pound weaken and  banking institutions’ share prices take a tumble, the knock-on effect of this uncertainty would probably hit mortgage availability and pricing for us all.

Undoubtedly those in Scotland would suffer most as many mortgage questions would surface, not least who regulates them? This is all quite apart from the fact that an English bank could suddenly find itself lending in one currency on a property in another country with potentially a different currency.

This would in effect mean that many Scottish borrowers could have a foreign currency mortgage at the risk of currency fluctuations.

The ripple effect of all this means the cost of funds for some of the main banks going through technical relocations, as well as generally, could rise which would be passed on to the borrower in the form of higher loan rates. Historically speaking, lenders have always taken the same approach in the face of uncertainty – they pull out. Let’s wait and see.

In the markets this week, three-month Libor is down a smidge at 0.558 per cent while swap rates have dribbled down further. It will be interesting to watch the Scotland effect, if any, next week. 

1-year money is unchanged at 0.785%                 

2-year money is down 0.03 at 1.21%

3-year money is down 0.04 at 1.52%

5-year money is down 0.03 at 1.955%

In product news, the rate war intensifies, which is leading to more extraordinary rates. As five-year fixes begin to break below the 3 per cent level, buy-to-let rates are at amazing levels.

NatWest is cutting rates on higher LTV products and buy-to-let deals. At 90 per cent LTV its first-time buyer two-year fix falls a massive 0.64 per cent to 4.45 per cent with no fee. On the buy-to-let side, rates are now available from just 2.09 per cent for a 60 per cent LTV two-year tracker with five-year fixes from 3.79 per cent with a £1,995 fee.