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Scottish independence could create mortgage drought Banks say: we'll leave Scotland if the independence vote is a yes
(about 2 hours later)
The financial implications of a yes vote for Scottish independence came under intense scrutiny as home owners were warned it would be harder get a mortgage and Royal Bank of Scotland and Lloyds Banking Group made plans to move to London if the electorate backed a breakaway from the UK.
Mortgage lending could dry up for Scottish homebuyers if Scotland votes for independence, experts warned on Wednesday as the financial implications of a yes vote came under intense scrutiny. The revelations about the contingency plans by the two banks – which employ thousands of people in Scotland – to set up legal entities in England came after Scottish homebuyers were facing warnings it could be harder to obtain a mortgage in the event of a yes vote.
Major lenders are preparing to restrict lending in the event of a yes vote as concerns rise over the currency that an independent Scotland would use and the outlook for house prices. The bosses of two major companies – BP and Standard Life – had also voiced their concerns about the impact of a yes vote even before details emerged of the plans being made by the two bailed-out banks to move their crucial legal status if the referendum on 18 September backed Alex Salmond's independence campaign.
As Mark Carney, the Bank of England governor, faced intense questioning from MPs about the currency implications for Scotland, the bosses of two major companies – BP and Standard Life – voiced their concerns about the impact of a yes vote. Standard Life, a pillar of the Scottish finance industry, warned it would move its vast pensions and investment business out of Scotland, while BP said Scots would get more benefit from oil reserves by remaining part of the UK. In a statement issued last night, Lloyds – which owns Bank of Scotland and is 25% owned by taxpayers – spelled out its contingency arrangements, which would be likely to involve moving its registered office from Scotland, where its Halifax Bank of Scotland business is registered. "While the scale of potential change is currently unclear, we have contingency plans in place which include the establishment of new legal entities in England," it said.
"This is a legal procedure and there would be no immediate changes or issues which could affect our business or our customers," added Lloyds, which is the largest private sector employer in Scotland with 17,000 staff.
The Treasury said the decision was understandable and Treasury sources said RBS was making similar preparations. "The government is not making contingency plans for a yes vote," a Treasury spokesman said. RBS is thought to be making a statement on Thursday.
David Nish, the Standard Life chief executive, said: "Standard Life has a long history in Scotland – a heritage of which we are very proud and we hope that this continues – but our responsibility is to protect the interests of our customers, our shareholders, our people and other stakeholders in our business."David Nish, the Standard Life chief executive, said: "Standard Life has a long history in Scotland – a heritage of which we are very proud and we hope that this continues – but our responsibility is to protect the interests of our customers, our shareholders, our people and other stakeholders in our business."
Bob Dudley, the BP boss who has faced criticism for not speaking out enough on the critical issue of oil, said the future prospects for the North Sea would be best served if the UK stayed together because "future long-term investments require fiscal stability and certainty".Bob Dudley, the BP boss who has faced criticism for not speaking out enough on the critical issue of oil, said the future prospects for the North Sea would be best served if the UK stayed together because "future long-term investments require fiscal stability and certainty".
Banks are also thought to be devising their own contingency plans. One source said they may transport more bank notes to Scotland to "ensure appropriate liquidity" if customers want to withdraw more cash. The intentions of the two banks – bailed out with £65bn of taxpayer funds – came after Bank of England governor Mark Carney had endured intense scrutiny about the financial implications for an independent Scotland by MPs on the Treasury select committee.
He had stressed Threadneedle Street had contingency plans in the face of concerns about capital flight from Scotland and indicated that a Scottish central bank could need at least 25%, and possibly more than 100%, of the nation's GDP in reserves if Salmond decides to use sterling after independence without the support of Westminster.
Banks are also thought to be devising other contingency plans. One source said they may transport more bank notes to Scotland to "ensure appropriate liquidity" if customers want to withdraw more cash in the event of a yes vote.
One housing industry insider said there has already been an impact on the housing market, with signs that the market for homes worth more than £600,000 – the top end of the market in Scotland – is drying up. At the same time, commercial property deals were being put on hold until the vote was known – and could be abandoned in the event of a yes vote.One housing industry insider said there has already been an impact on the housing market, with signs that the market for homes worth more than £600,000 – the top end of the market in Scotland – is drying up. At the same time, commercial property deals were being put on hold until the vote was known – and could be abandoned in the event of a yes vote.
Some potential property buyers have inserted clauses into their offers saying "subject to a no vote", according to the mortgage broker Ray Boulger of John Charcol. He said: "A yes vote will create massive problems in terms of how mortgages are denominated and regulated. We expect it to be much more difficult for Scottish borrowers to get mortgages post a yes vote."Some potential property buyers have inserted clauses into their offers saying "subject to a no vote", according to the mortgage broker Ray Boulger of John Charcol. He said: "A yes vote will create massive problems in terms of how mortgages are denominated and regulated. We expect it to be much more difficult for Scottish borrowers to get mortgages post a yes vote."
Other senior bankers are speaking of a pause in lending until the currency situation is clear. Other bankers are speaking of a pause in lending until the situation is clear.
Lenders are refusing to comment publicly for fear of being accused of playing politics. But one said: "Before that poll [the Sunday Times/YouGov poll that showed the yes campaign in the lead] it was interesting but not critical. Now we are watching things very, very closely. It introduces huge uncertainty and one way of decreasing our exposure and risk would be to reduce the loan-to-value offered to borrowers." Lenders are refusing to comment publicly for fear of being accused of playing politics. But one said: "Before that poll [the Sunday Times/YouGov poll that showed the yes campaign in the lead] it was interesting but not critical. Now we are watching things very, very closely. It – introduces huge uncertainty and one way of decreasing our exposure and risk would be to reduce the loan-to-value offered to borrowers."
However, another lender with significant operations in Scotland said it expected business to resume as usual, even in the event of a yes vote.However, another lender with significant operations in Scotland said it expected business to resume as usual, even in the event of a yes vote.
David Hollingworth, at mortgage broker London & Country, said one of the key issues involved how Scottish mortgages lent by English banks and building societies would be regulated in the event of a yes vote. He said: "If it starts getting more and more complicated in terms of currency, regulation and so on, is it going to be something lenders adapt to, or are they actually going to turn their back on that market? Certainly, some smaller lenders could decide on the latter. The larger ones may well stick with it."David Hollingworth, at mortgage broker London & Country, said one of the key issues involved how Scottish mortgages lent by English banks and building societies would be regulated in the event of a yes vote. He said: "If it starts getting more and more complicated in terms of currency, regulation and so on, is it going to be something lenders adapt to, or are they actually going to turn their back on that market? Certainly, some smaller lenders could decide on the latter. The larger ones may well stick with it."
There were also reports that bankers were advising companies planning stock market flotations to hold fire until the outcome of the referendum is known. Adam Gishen, a partner at advisory firm Ondra Partners, told Reuters: "There's certainly a wait-and-see approach for the next eight days. People are nervous. Because the Sunday poll was so sudden they have been reassessing their risk appetite." The precise amount of reserves need to back an independent Scotland will depended on the size of the banking sector, at least 10 times the size of Scottish GDP.
Carney told the Treasury select committee that the Bank of England had contingency plans in place if Scotland votes on 18 September to go it alone. Several economists have warned that savers and companies could rush to move their money out of Scotland. The governor told MPs: "There are reasons why we have contingency plans in place". There had been mounting expectations that banks would shift their registered offices to seek the protection of the Bank of England – to protect customers and the bank's all-important credit ratings.
The governor promised to provide a detailed analysis to the committee this morning of his comments on the approach taken by other countries and Andrew Tyrie, the Tory MP who chairs the Treasury select committee, seized on Carney's remarks about the reserves Scotland would need to support the use of sterling without Westminster's permission.
"Today the governor clarified that, whatever currency arrangement is chosen, Scotland would require much higher reserves than it could inherit as a share of UK assets.
"That would leave a very big shortfall. As the governor said, meeting this shortfall would mean 'real fiscal costs' for Scotland – almost certainly higher taxes or spending cuts."
Carney told the Treasury select committee that the Bank of England had contingency plans in place if Scotland votes on 18 September to go it alone. Several economists have warned that savers and companies could rush to move their money out of Scotland. The governor told MPs: "There are reasons why we have -contingency plans in place".
Giving few details, Carney said that in the immediate aftermath of a yes vote, financial institutions would continue to be offered Bank of England support and depositors would be protected by the existing Financial Services Compensation Scheme. In line with EU rules, that scheme covers £85,000 of savings in a single institution.Giving few details, Carney said that in the immediate aftermath of a yes vote, financial institutions would continue to be offered Bank of England support and depositors would be protected by the existing Financial Services Compensation Scheme. In line with EU rules, that scheme covers £85,000 of savings in a single institution.
Carney indicated that a Scottish central bank could need at least 25%, and possibly more than 100%, of the nation's GDP in reserves if Alex Salmond decides to use sterling after independence without the support of Westminster. The governor promised to provide a detailed analysis to the committee this morning.
Andrew Tyrie, the Conservative MP who chairs the Treasury select committee, seized on Carney's remarks about the level of reserves an independent Scotland would need to support the use of sterling without Westminster's permission.
"Today the governor clarified that, whatever currency arrangement is chosen, Scotland would require much higher reserves than it could inherit as a share of UK assets. That would leave a very big shortfall. As the governor said, meeting this shortfall would mean 'real fiscal costs' for Scotland – almost certainly higher taxes or spending cuts."
Economists at JP Morgan were the latest bankers to warn of a capital flight from Scotland as they predicted lower than currently expected economic growth, a sharp fall in the pound against the dollar, and a delay in the first rise in interest rates to the second quarter of 2015.
Allan Monks, the bank's economist, said a yes vote would also increase the chances of a UK exit from the EU, because it would herald a "shifting of UK politics to the right", making an in-out referendum on EU membership more likely. However, JP Morgan is still expecting Scotland to vote no.
Harvard economist Ken Rogoff, a former director of research at the International Monetary Fund, also warned of dire consequences for Scotland, even if there is a no vote. He told CNBC: "Even if it doesn't pass, people are not going to want to invest there because they might do it again. People will migrate out of there."