How can the Scotland issue possibly affect the property market in the UK?

 

How can the Scotland issue possibly affect the property market in the UK?

How can the Scotland issue possibly affect the property market in the UK?

The connection here is very current and could be predicted. Already the Pound is cascading due to international market uncertainty about the Scottish devolution issue.  Unanswered questions remain, such as:

What will happen to the Scottish share of the National Debt?

What currency will Scotland be able to use and how will it affect the Pound?  What difference will it make to the UK GNP?

Will the newly formed UK (without Scotland) drop down the international rankings in the G7 since it would be a smaller country with lower GNP?

What effect will it have on foreign investors buying in the UK?

What will happen to the UK property market outside of London and what will happen to it in London?

What happens to the outcome of the next election in May 2015 if the referendum outcome is a yes and the Labour Party loose 40 odd parliamentary seats in Scotland?

These unanswered questions are swirling around at the moment and, frankly, uncertainty is never good for the markets. So perhaps it’s a blessing that the answer to this debate will shortly be revealed.

Let me make an attempt to answer some of these questions.

A lower Pound must be good for foreign investors buying in the UK and this is no bad thing since is has risen relentlessly over the past 6 months to a year reflecting the dynamism of the UK’s economy in world terms.

Imported goods may become slightly more expensive and this then may have an impact on inflation (since we have a trade imbalance) and, therefore, persuade Mr. Carney and his ‘merry men’ at the ‘BoE’ to bring forward interest rate rises to the fourth quarter of 2014 instead of the first/second quarter of 2015.  Interest rate rises have not been seen for the last 8 years or so and, therefore, may have a profound effect on buying sentiments with higher mortgage rates on both variable and fixed products.

With stable employment, some households have their outgoings finely balanced and although the increases in base rates will be relatively small, i.e. ¼% in relative terms, (given the historic low level that they are at present) this could be still seen as a 50% rise which may grab the headlines.

Whether a devolved Scotland will or will not share some of the National Debt, I suppose will be a negotiating position that the Scottish Nationalists will trade in exchange for some relaxation in the conditions of sharing the Pound.  The European Commission has shown no appetite to allow Scotland to join the Euro since this may trigger a number of similar devolutions elsewhere in Europe and is undesirable for certain countries.

I’m sure that the Pound will continue to devalue against the Dollar and Euro since a great deal depends on what happens after the Referendum if devolution takes place.  With all this uncertainty currency speculators will assume the worse.

After a successful Yes vote, technically, the UK will be a smaller financial sovereign entity and will no longer rank alongside Italy and France (which hitherto were our economic peers) and that could affect its world economic status, plus, it is a reasonable extrapolation of events to think that Wales could be the next one to be in line for devolution which could, again, prolong uncertainty.

A drop in the value in the Pound to the foreign investor is a good thing since Sterling has appreciated quite considerably against the Dollar and Euro over the last three quarters reflecting our fast growing economic status in the world rankings.  Since most foreign purchasers buy in London this will probably only have a positive effect on property prices in the Capital.  However, the prospect of Mansion Tax still looms if one of the Socialist parties wins the next Election which is certainly a black cloud hanging over the market.

The property market generally outside of London is, in the main, doing reasonably well since it had suffered from a malaise, if not depreciation, over the last 5 years and always lags behind the Capital.  We see a ‘Yes’ vote after the referendum as bringing this towards a negligible flat line growth for the reasons highlighted before.

In London either the market will flat line or it may dip slightly due to the negative pressures, again, outlined above.  August trading generally, in all price ranges, in London has been very poor and almost unprecedentedly amongst many agents of all types. Whether this spells a dull period for the Autumn market, time will tell, but there is certainly no property bubble to worry about as Mark Carney or Vince Cable would have had us believe a few months ago and, therefore, it does not need too much negative stimulus to slow it down and fall into some negative price territory.  I see growth as being reasonably static until the Election when either it will rise or fall (certainly in the higher ranges) as we understand better which party is triumphant and whether a Mansion Tax or extended Council Tax Band strategy is implemented and the details of this become clearer.

If the outcome of the Referendum is a Yes and the Labour Party loose 40 odd parliamentary seats in Scotland (in 18months time) this could have a profound effect and add to the uncertainty for potential voters in the UK.  For instance, if the result were a Labour Party with a small majority they would then have far fewer parliamentary seats and that may require them to relinquish power to the next largest party that could be the Conservatives. At the next Election Scottish Labour MPs would then be canvassing in their constituency for votes and yet in 18months time they would no longer be the MP. Not only would the electorate be confused but since the Labour Party and the Conservatives have completely different ideas about spending, taxation and growth, this would add to the confusion and that does not help stability in the markets or positive sentiments by economic commentators.  The words ‘dogs breakfast’ springs to mind!

For the sake of stability and continuity one hopes that the recent surge in the opinion polls for the ‘Yes’ vote will galvanise the ‘No’ voters into action, since complacency and apathy are always the antagonists of a moderate outcome.