Four years ago, my family bought a house in Edinburgh. At the time, I wrote in the Financial Times that, while I liked the house and loved the city, it might turn out to be the worst financial decision we had ever made. Since then, nothing much has happened in the Edinburgh market: my mistake was less buying in Edinburgh than selling in London.
That may be about to change. If Scotland votes Yes, what will happen to the value of the house we spent two years looking for?
You can see a hint of this in the Edinburgh market right now: I have spoken to several people involved in property deals who inserted an independence clause into their contracts. If there is a Yes vote, the buyer gets to pull out.
Not exactly a stunning vote of confidence in the market, is it? You can see what people are thinking. No one knows what a Yes vote would actually mean, but given the statements from banks and other financial companies, it is fair to think that an awful lot of their highly paid staff would soon be working somewhere else.
And as they leave, so too will go the high incomes of the lawyers and accountants who pick up their pieces. At the same time, they worry about mortgage rates. Now a mortgage costs the same in Morningside as in Mornington, but would that still be the case after independence?
If Scotland was paying higher rates to borrow in the wholesale money markets, wouldn’t that hit the price of a five-year fix? What if, in the nasty hiatus between vote and independence, mortgage lenders refused to lend at all, for fear of ending up holding sterling debt against an asset now valued in a new currency?
Credit restrictions and rising interest rates have a tendency to mean falling house prices. Regular readers will know that I am a natural worrier. But this is just the beginning of the list of things I am worrying about this week.
I have moved money from Scottish banks to protect myself from the remote, but not impossible, threat of bank runs; I have checked where my south-of-the border Isa provider holds my cash deposits: and I am topping up my Isa as much as I can too.
My guess is that in the new Scotland any tax-protected savings in existence would still be protected, but you would no longer be able to hold them in their existing (now offshore!) structure. Nobody knows if the new system would be more or less generous, so Scottish residents are best to use what they have while they have it.
Next, I am worrying about the possibility of a rising cost of living – not just from tax rises, but from what Sir Charlie Mayfield of John Lewis suggests will be “different” retail prices in a new Scotland.
I’m worried about the currency and the possibility of Scotland’s outsized banking sector not having a lender of the last resort.
I’m worried about the disconnect between the left-wing rhetoric of the Scottish National Party and the fact that the statistics show that voters are generally no more left-wing than UK voters as a whole. Someone’s going to be disappointed.
But most of all I am worrying about harmony. Independence referendums are hardly unusual. But if the Yes campaign gets its way, with let’s say a 55% vote for yes and separation follows, this will be the least voted-for independence yet.
Most successful referendums in the past have come in at over 90% and the few that haven’t (Latvia, Estonia) have been near 80%. That has meant many fewer angry people and a worthwhile sense of a cohesive community during the inevitably tough bits of transition. We won’t have that.
But just because I am worried, it doesn’t follow that, in the short term at least, southern investors should be too. They shouldn’t see their savings suddenly denominated in another currency and I can’t see a realistic scenario under which a new Scottish government abducts Isas held with the likes of Scotland’s Alliance Trust Savings.
There’ll be short-term volatility in the gilt market and there’d be the same uncertainty knocking around sterling too. But in the end, given how vast the UK’s debt is already (85% of GDP), taking on Scotland’s share wouldn’t be that big a deal and both gilts and sterling should stabilise relatively quickly.
Still, the worriers among you might by now be wondering where my new Isa money is going. The answer is probably not to Scottish-based investment trusts for now. Not because a Yes vote will cause them big problems, but because it might make them temporarily cheaper.
Instead, I’m thinking of a fund or two run by people who are entirely sanguine about global geopolitics. Anthony Cross, co-manager of three Liontrust funds, came by this week.
Nothing I could say about geopolitics scared him – not Chinese meltdown, not deflation in Europe and not even capital flight from Fife. He cares nothing for these things: his process requires only that the companies in which he invests have a clear intangible strength that it is very hard for anyone else to replicate.
This appears to work: the small-cap fund is up 180% in the past five years against a sector average of 134%. Otherwise, I’m taken by a newcomer to the market: the Tellsons Endeavour Fund.
It is a one-stop shop absolute return fund with a long-term capital protection orientation, investing in a mix of bonds and equities with a clear strategy and sensible managers. More interestingly, it offers a performance fee class which (beyond an administration fee) charges no base management fee at all, only a share of any outperformance.
I’ll come back to this interesting proposition in a post-referendum article – when I know just how bad a decision our house purchase was, and I feel a little calmer.
• This article was first published in the Financial Times.