The SNP's currency would bring us mortgage madness

The SNP's currency would bring us mortgage madness

by Jonathan Stanley
article from Tuesday 5, March, 2019

THE 1980S were a rollercoaster for many in Britain. Interest rates were routinely above 10 per cent and mortgage owners dreaded negative equity as much as a Soviet invasion, at least one of them was very likely to wreck their dreams of owning their own home.

In the European Union there has been similar pain metered out to mortgage owners, not through swings in interest rates but through swings in currency. Following accession to the EU by Soviet satellite states, freedom of movement of capital and closer economic integration led to as many as 40 per cent of mortgages in Poland being written in Swiss Francs, given their very attractive interest rates at the time.

Then, when the 2008 crisis struck, the Polish Zloty and Hungarian Forint went south and the Swissie went stratospheric. Earnings in Swissie terms dropped, interest payments rose and affordability led to re-mortgaging short term loans that left many in dire straits.

This is the reality of the currency of your mortgage rising against the currency your wages are paid in. 

For public sector workers in the NHS and education their salaries remain fixed over time as they are unresponsive to the free market. Imagine then that the Scottie fell 20 per cent against Sterling in the first year, a very plausible amount.

The result would be a £100K mortgage in a newly independent Scotland now being £125K in new money. Payments would also rise 25 per cent and when it comes to re-mortgaging the £25K pa earnings would now only be worth £20K in old money.

The loan value now is 5x earnings instead of 4x. The repayments 25 per cent higher. Assuming no equity gains the Loan-to-Value ratio has also increased by 25 per cent.

Suddenly a mortgage costs far more to service, is consequently less affordable and covers a higher LTV ratio. For many who have made good gains over many years this would be an ideal time to sell out, and this can lead to a sudden capital withdrawal from the market.

The vicious cycle of devaluation will ensue until a new equilibrium is reached. A lot of homeowners suddenly have far less equity to borrow against, their prospects of easily selling their home at a good price evaporate and the continued higher interest payments to another countrywill make for appalling balance of payments figures.

The effect of a new currency on mortgages will lead naturally to a black hole sucking money out of Scotland until those mortgages are somehow transferred to the new Scottish currency, and where will that come from? 

It is a recipe for Madness, divine Madness. Welcome to the SNP’s House of Fun!

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