The bill has completed its second reading and is going to the committee stage in the new year – it is worth noting the following effect on the proposed:
Abolition of marriage value
I have seen comment that the shorter the lease, the more impact this will have on the saving to a tenant. This is not true.
The greatest saving in marriage value happens between 40 and 60 years. To prove this, I analysed the effect of marriage value for 2 clients with ‘live’ claims.
The first has an unexpired lease of approx. 47 years – marriage value made up about 50.5% of the total premium payable.
The second had an unexpired lease of just over 10 years – marriage value made up about 19% of the total premium.
Consequently, if it is legislated that the prescribed rate to defer the landord’s interest is set (for a period of 10 years before further review) at say 3.5% – the 47 year unexpired lease example will increase the overall premium by about 77% compared to what the premium would be if marriage value is abolished without adjusting the deferment rate from the current proscribed rates of 4.5% for houses and 5% for flats. The bottom line effect though will discount the overall premium (with marriage value) by about 12.5% whereas in the 10 year lease example, the premium will more or lease remain unchanged.
If the landlord’s reversion is proscribed at say 4.5% – the 47 year mid term lease example will increase the premium by just over 79% and 11% respectively whereas the short approx.10 year lease example the premium will reduce by about 13%.
We wait to see how the bill progresses on which I will make further comments in this blog.
However right now, it is hard to advise clients without knowing the exact proscribed rates the government intends to adopt to both buy out the ground rental income as well as the landlord’s reversion.