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The government’s Warm Homes Loan Scheme is now live, offering no- and low-interest finance for solar panels, batteries and heat pumps
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Households can now apply for government-supported loans to help cover the upfront cost of solar panels, batteries and heat pumps following the launch of the Warm Homes Loan Scheme.
The scheme, which launched on 27 October, offers no- and low-interest finance for home energy improvements, allowing households to spread the cost over several years rather than paying for an installation upfront.
Ten lenders are participating initially, with some offering interest-free finance and repayment periods extending to as long as 30 years in certain cases. More lenders and products are expected to join the scheme as it develops.
The government has committed £300m of grant capital to the scheme, which is used to reduce the cost of finance offered by participating lenders.
The scheme could be particularly significant for solar panels, where households have traditionally had to find several thousand pounds upfront or take out relatively expensive finance.
Lloyd Greenfield, founder and CEO of solar installer Glow Green, told The Independent that cheaper finance could make rooftop solar accessible to a much wider group of homeowners.
“I think this is going to open up a massive part of the market,” Greenfield said. “There are so many people out there who aren’t as fortunate to have savings of £10,000 or £15,000.”
Read more: Best solar panels, compared
Despite being government-supported, the loans themselves do not come directly from the government.
Instead, participating banks, credit unions and specialist lenders provide the finance. Government support helps them reduce the interest rate they would normally charge, with borrowers able to benefit from reductions of up to five percentage points.
The rate you are offered will depend on the lender and product you choose. Some of the first loans available through the scheme are interest-free, while others charge interest, so it’s important to compare products rather than assuming every Warm Homes Loan will cost the same.
The government gives the example of a homeowner borrowing £10,000 over seven years. At an interest rate of 8 per cent, repayments would currently be around £155 a month. It says support through the Warm Homes Loan Scheme could reduce repayments by as much as £285 a year.
Repayment periods also vary. While some borrowers may repay their loan over a relatively short period, terms of up to 30 years are available in some cases.
You don’t have to apply to the government for a Warm Homes Loan. Applications are made through a participating lender, either directly or, where available, through an installer or retailer arranging the work or through your mortgage provider.
“There’s nothing that the homeowner needs to do,” Greenfield explains. “They don’t need to apply for a grant or jump through loads of hoops.”
However, you will still need to pass the lender’s normal credit, affordability and eligibility checks.
The government advises borrowers to look at the total amount they will repay over the lifetime of the loan, as well as the monthly payment and interest rate. A longer repayment term can reduce monthly costs, but could increase the total amount of interest paid where the loan is not interest-free.
The amount you can borrow under the Warm Homes Loan Scheme depends on the technology being installed.
For solar PV, the maximum supported loan is £15,000. A separate limit of up to £15,000 applies to electrical battery storage, which means households installing solar panels and a battery together may be able to finance both through the scheme.
The other maximum loan amounts are:
Homeowners installing a heat pump may also be able to combine a Warm Homes Loan with a grant of up to £9,000 through the Boiler Upgrade Scheme. Home Energy Scotland support can also be used alongside the loans in Scotland.
With the exception of heat network connections, installations through the scheme must be carried out by an MCS-certified installer. You cannot carry out the work yourself.
To qualify, you must own the property you are applying for, either outright or with a mortgage. The property must be residential and located in the UK.
This means the scheme can be used by eligible homeowners and private landlords, although individual lenders may impose additional eligibility requirements.
Unlike some solar panel grants and funding schemes specifically targeted at households on lower incomes, applicants must be able to pass their lender’s normal affordability and credit assessments.
People on lower incomes may instead qualify for free or subsidised energy-saving improvements through schemes such as the Warm Homes: Local Grant.
Greenfield believes affordable finance will broaden the appeal of rooftop solar beyond households that can afford to buy a system outright.
He described the market to date as being in an “early adoption phase”, dominated by households that are able to spend their savings on solar in return for lower electricity bills over the following years. “I think we’ll move from this early adoption phase into what I think will be more of a mass adoption,” he said.
One potentially attractive feature of cheaper, longer-term borrowing is that some households could find the savings from their solar panels cover a significant part of their loan repayments.
The government estimates that installing a combination of solar panels, battery storage and a heat pump could save a household up to £550 a year on its energy bills, potentially increasing by a further £300 a year when used with a time-of-use energy tariff.
However, these figures apply to a combination of technologies rather than solar panels alone, and actual savings will vary considerably between homes.
Greenfield said that, in theory, some households could find their savings exceed their financing costs, although he stressed this was not something Glow Green could promise customers.
Whether this happens will depend on the cost and size of the installation, the interest rate and length of the loan, how much electricity the panels generate, how much is used in the home and how much is earned from exporting surplus electricity to the grid.
Households should therefore compare the total cost of borrowing with their likely energy savings rather than assuming that lower monthly repayments automatically make an installation profitable.
Ten lenders are initially offering loans through the Warm Homes Loan Scheme:
However, more lenders and finance products are expected to join the scheme as it develops.
You can apply directly to a participating lender or, depending on the finance product, through an installer or retailer when arranging your home energy improvements. Some mortgage providers may also offer Warm Homes Loan products.
You should note that not every lender offers the same interest rate, repayment period or even choice of installer. Some work with selected installers, while others allow borrowers to choose any eligible MCS-certified installer.
It’s therefore worth comparing both your installation quote and finance before signing an agreement. Check the interest rate, monthly repayment, length of the loan and total amount repayable, as well as whether you are tied to a particular installer.
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