Low-interest loans for heat pumps, USA News (London): Details of a new government-backed, low-interest loan scheme to help households pay for heat pumps, solar and batteries have been unveiled. Launched on Tuesday, ahead of Chancellor John Healey announcing his first Budget, the scheme is designed to encourage more households to invest in green tech to lower their energy bills.
The majority of larger lenders will offer loans in the region of 2 to 4 percent, according to multiple sources, with the scheme covering heat pumps, solar panels and batteries but not insulation. Citizens Advice have warned that limitations within the scheme risk leaving behind a squeezed middle that can’t access support. Meanwhile, it comes amid rumours that the Government is preparing to cut its Boiler Upgrade Scheme, which offers non-repayable grants for heat pumps.
How does the new loan scheme work?
The Government is funding participating lenders to help them provide green loans with lower interest rates than the deals currently on offer. Previously, there were a limited number of low-interest rate loans for green upgrades on the market, and they usually have tight restrictions. For example, Nationwide offers a zero per cent green upgrade loan for its mortgage customers for a duration of two or five years. Mainstream personal loans tend to have higher interest rates, with the best rates sitting at around 5.9 per cent APR.
The Government’s new scheme will see the Treasury pay lenders up to 20 per cent of the loan amount, in turn allowing lenders to offer deals with rates several percentage points lower than they otherwise would have. For example, if a lender currently offers solar panel loans with an interest rate of 7 per cent, then they could offer deals with an interest rate of 2 per cent by joining the Government’s scheme. The loans are available to households across England, Scotland, Wales and Northern Ireland.
What can you fund using the loans?
The loans will be for a minimum of three years and will cover the following technologies:
| Technology | Maximum Loan Amount |
|---|---|
| Solar panels | Up to £15,000 |
| Electrical storage battery | Up to £15,000 |
| Air-water source heat pump | Up to £20,000 |
| Air-air source heat pump | Up to £10,000 |
| Ground source heat pump | Up to £35,000 |
| Biomass boiler | Up to £20,000 |
| Heat network connection | Up to £7,500 |
| Micro-renewable system (such as domestic wind turbine) | Up to £20,000 |
The Government has said that installing a heat pump, battery and solar panels could help families save up to £550 a year on their energy bills, rising by an additional £300 a year with a time-of-use tariff.
What are the limitations?
The loans will not cover insulation, which is often recommended for households installing heat pumps in order to help the device work efficiently. James Dyson, senior researcher at the climate change think-tank E3G, said the loans will be helpful for people looking to protect themselves from high gas prices, but added that it was a shame they can’t be used to pay for insulation.
Gillian Cooper, director of energy at Citizens Advice, said the scheme will help households who can afford to borrow but that this cannot distract from the serious threat of cuts elsewhere within the Warm Homes Plan. In the lead-up to the Budget, there have been reports that the Government is considering cutting the Boiler Upgrade Scheme, which offers subsidies of up to £7,500 for households switching from a gas boiler to a heat pump. The cuts are being considered as the Department for Energy Security and Net Zero looks to shave £2bn from its budget to fund an increase in the UK’s defence spending.
However, the Government’s announcement of the new loan scheme noted that homeowners will also be able to combine a loan with a grant of up to £9,000 through the Boiler Upgrade Scheme and Home Energy Scotland in Scotland, further reducing the cost of installing a heat pump. Cooper noted concerns about squeezed middle families who risk being left behind by this loan scheme because they earn too much to qualify for low-income support but lack disposable income to take on new debt.
Who are the participating lenders?
The list of lenders currently participating in the scheme, published on Tuesday, includes a range of organisations, from high street banks to Buy Now Pay Later lenders:
- Homeserve (partnering with E.On)
- Hometree Finance
- Propensio
- Secure Trust Bank
- Selina Finance
- South Manchester Credit Union
- Sunsave
- Tandem Bank
- The Money Co-op
- This Bank
The Government said that further lenders and products are expected to join the scheme as it develops. Energy Secretary Miatta Fahnbulleh said in a statement that energy is an everyday essential that must be affordable for everyone, and that these government-supported loans will help families across the UK upgrade their homes with no upfront costs.
