Mortgage blog: Why your Scottish mortgage payments could be set to rise

Posted 7 June 2013 by Keith Osborne

If you're thinking of buying a property in Scotland, a vote for independence in the country could see your mortgage repayments rise. That's the conclusion of a new Treasury report which has questioned whether Scottish banks could fund a successful financial compensation scheme and how the knock-on effect of this could be lower confidence, fewer deposits and more expensive mortgages.

Could Scottish independence make your mortgage more expensive?

The Scottish government plans to hold a referendum of the Scottish electorate on the issue of independence from the United Kingdom on Thursday 18th September 2014. Scots will be asked to vote on whether Scotland should be an independent country and independence is supported by the Scottish National Party led by First Minister Alex Salmond.

However, a new paper from the Treasury has argued a vote in favour of Scottish independence could see borrowing costs pushed up which would consequently result in higher mortgage rates for Scottish consumers.

In the event of independence, Scotland would be forced under European law to have a separate financial regulatory system and its own deposit guarantee fund, to compensate savers if a bank crashed. The Treasury report has called into question whether an independent Scottish state could set up a sufficiently well-funded financial compensation scheme. Without this, the Treasury believes that there could be a loss of confidence in Scottish banks, resulting in customers making fewer deposits to fund mortgages.

"In the event of Scottish independence, the Treasury doesn't believe that the country would be able to set up a sufficiently robust compensation scheme," said Keith Osborne, editor of "This means that Scottish banks and mutuals would have to offer better savings rate to attract deposits or fund their mortgages through greater use of the wholesale markets. Without the support of UK financial institutions, the Treasury argues that the cost of funding for Scottish lenders would be more expensive and these costs could be passed onto borrowers through higher mortgage rates."

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

John Swinney, the Scottish finance secretary, dismissed the claims. He said: "The Tory government and their Lib Dem followers will use this paper to make all sorts of implausible claims about things like mortgages, when the reality is that many countries around Europe, including those of similar size to Scotland, have substantially cheaper mortgage rates than the UK."

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