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Yes or no, the Scotland referendum looks to be good news for property investors
September 17, 2014Article by Ray Withers
Tomorrow, Scotland will engage in one of the most important votes in the country’s history. The key short term impact of the Scottish Independence vote will be upon the value of Sterling and the share prices of Scottish companies. For property investors based in the UK, there should be no real changes either way in the short term. However, for overseas investors looking to buy Sterling to invest in UK property then there could be potentially wide swings in the value of the currency.
A currency on the up?
As of today Sterling is continuing to creep up from its recent lows; much facilitated by this morning’s positive news on job creation and wage price growth. The number of jobs created was very positive, but wage growth itself is still relatively limited. Considering the Bank of England’s focus on wage growth as a pre-determinant of interest rate rises, this is important news. The modest 0.7% growth in wages probably isn’t enough to convince markets a rate rise is imminent; especially considering lower than expected inflation figures at 1.5%.
Despite the strong fundamentals underpinning Sterling, it has fallen substantially over the last few weeks as markets have priced in the risk of a Scottish ‘yes’ vote. However, with polls still stating the result is too close to call, it is likely that Sterling will respond significantly once the results are in. In the case of a ‘yes’ vote then Sterling will very likely drop dramatically and may well stay there for some time as the technicalities of establishing an independent Scotland are worked through.
Arguments over a currency union and the impact of Scotland walking away from its share of the national debt will weigh heavily on the pound. This would present an excellent opportunity for our overseas buyers to capitalise on a cheap Sterling and invest in UK property. It is likely that over the medium term Sterling will recover as uncertainty disappears and normal business resumes. This could add an attractive currency gain over and above the underlying performance of the investment property. In the longer term Scottish property may well dip in value and present a good buying opportunity; but this will much depend upon the path taken by a newly independent Scotland.
Yes or no?
In the event of a ‘no’ vote there will likely be a rally in the value of Sterling as the risks of separation are removed. In the absence of the Scottish referendum, sterling should continue to be strong as a result of the fact that the UK economy is one of the strongest in the western world.
Which way the people of Scotland will vote is still too close to call, but both outcomes look good for UK property investors. A ‘yes’ may make Sterling cheaper and the UK more competitive internationally whilst a ‘no’ vote would continue the status quo which is already a very positive picture.