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 2-4 per cent, 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:
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 £20,000The 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, which helps people to stay warm and keep their bills low.”
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 this week’s 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 (DESNZ) 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 said: “We’re particularly worried about ‘squeezed middle’ families who risk being left behind by this loan scheme. They earn too much to qualify for low-income support towards efficiency upgrades, but don’t have enough disposable income to take on new debt or cover the upfront costs.”
The Government offers grants to pay for green upgrades via its Warm Homes scheme, but this is typically for households on means-tested benefits or with a combined income below £36,000.
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 BankThe Government said that further lenders and products are expected to join the scheme as it develops.
Energy Secretary Miatta Fahnbulleh said in a statement: “Energy is an everyday essential that must be affordable for everyone.
“These government-supported loans will help families across the UK upgrade their homes with no upfront costs to make them warmer and cheaper to run.”
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