Scottish independence may force up mortgage rates

The Treasury has argued a vote in favour of Scottish independence could see borrowing costs pushed up which would result in higher mortgage rates for Scottish borrowers.

In its paper on the impact of Scottish independence, published this week, the Treasury calls into question whether an independent Scottish state could set up a sufficiently well-funded compensation scheme. The Treasury says this could lead to a loss of confidence in Scottish banks, resulting in fewer deposits to fund mortgages.

Scottish lenders would then either have to offer better savings rates to attract deposits, or fund mortgages through wholesale funding. Without the backing of UK institutions, the Treasury argues Scottish banks would be hit by more expensive wholesale funding costs. It is likely any increased costs would then be passed on to consumers.

The Treasury calculates a 1 per cent rise in mortgage rates would cost the average Scottish household with a 75 per cent loan-to-value mortgage around £1,300 in increased payments in the first year.

Chartwell Funding managing director Robert Winfield says: “In the short-term Scottish lenders could experience pain through higher funding costs, but there could be long-term gain.”