The Green Deal explained Green Deal Finance - paying for the Green Deal
There are many different financial stages to the Green Deal - from having a Green Deal assessment, to taking out a Green Deal loan and then repaying the loan through your electricity bills. Below we've put together all the key information that you'll need to know before signing up to the Green Deal scheme.
Ways to borrow - Green Deal finance and loans
The aim of a Green Deal loan is to help spread payments for the upfront cost of measures such as solid wall insulation, boilers and double glazing. You will need to go through a credit checking process before taking out a Green Deal loan.
To participate in the Green Deal, you can choose to take out a Green Deal loan or to pay for energy-efficiency measures with a credit card, by increasing your mortgage, or using an unsecured loan or your own savings.
Green Deal loans
A Green Deal loan works differently to a loan from a bank or other credit provider:
- Green Deal loan repayments are added to your electricity bill. You repay the loan through your electricity bill payments (by direct debit, for example, if that's how you pay).
- One of the key aspects of the Green Deal is the 'Golden Rule' – loan repayments should never exceed the savings you make on your energy bills from the installation of measures recommended in your Green Deal assessment. So, in theory, you should see no increase in your electricity bills.
- However, the Golden Rule is not a guarantee that your bill savings will match your loan repayments. It is based on estimates of a typical household's energy usage and savings, and doesn't take into account future energy price rises.
- Your lender will be your Green Deal Provider. It decides on the terms of your loan, such as how much you can borrow (there is no limit), how long you can borrow for, and the rate of interest you'll pay.
- The loan is attached to the property you live in, not you. If you sell your home, it will pass on to the new owner.
- A Green Deal loan is not a loan or grant from the government. You may be able to benefit from cashback or additional discounts through the Energy Company Obligation if you take out a Green Deal.
Green Deal interest rates
At the moment, the interest rates on Green Deal loans can vary. It will depend on which energy efficient measure(s) you choose to install in your home, how much finance you require and which company you use to take out your loan.
There are no concrete limits for the size of the loan and the minimum and maximum lengths of loans - this will depend on the company you take out your loan with.
However, the Green Deal Finance Company has published a list of example loans - the interest rates range from 7.9% APR to 10.3% APR. These example loans were between 10 and 25 years long.
According to the Green Deal Finance Company, there is a one-off loan fee of £63 and a £20 annual finance charge for every loan that’s taken out. Green Deal providers have the option of absorbing this cost, or passing it on to you.
Depending on how much money you borrow, this extra fixed fee could have a big impact on the interest rate that you pay on your Green Deal loan.
How Green Deal interest rates may increase
If you took out a Green Deal loan worth £1,500, repaid over 25 years, and the headline rate of interest is 6.96%, the interest rate you pay is actually going to be over 9% a year with the annual finance charge included.
But taking out a £5,000 loan at the same rate and time period means you will actually be paying around 7.3% a year, as the annual charge represents a smaller percentage of the total repayments.
It's vital that your provider fully explains this to you. Look for 'Representative APR' on the Green Deal loan you're offered - this stands for annual purchase rate and should reflect the true interest rate you pay with fees included.
Paying off a Green Deal early
As a result of Which?'s campaigning, on 16 May 2014 the Green Deal Finance Company announced that it will be removing any early repayment fees for future Green Deal loans taken out with it. The Green Deal Finance Company is also working to try and encourage other Green Deal providers to waive early repayment fees for existing Green Deal loans.
If you took out a Green Deal loan before this date, you can still pay it off early but you may incur a fee. If you took out a Green Deal loan for less than £8,000 over less than 15 years, there are no early repayment charges. For some providers, early repayment fees will be small when the Green Deal plan duration is 15 years or less and over £8,000 (up to a max of 1% of the loan). But for Green Deals of longer than 15 years, there is a maximum charge of £6 for each year left on the loan for every £1,000 you want to repay early.
Other alternatives to a Green Deal loan
You don't have to pay for energy-efficient measures using a Green Deal loan. Which? has outlined the advantages and disadvantages of using alternative payment methods below.
Using your savings
You benefit from energy savings straight away as there are no repayments and no loan attached to your property. However, this may restrict you to cheaper home improvements.
Using an unsecured loan
You may get a better interest rate than with a Green Deal loan. But the loan is attached to you, not your property, and unsecured loans are usually much shorter term and your repayments are likely to be higher.
Increasing your mortgage
You may be able to get a better interest rate as mortgages are long-term loans. However, there are no guarantees that the cost of the measures you have installed will be met by an equivalent increase in the value of your property.
Using a credit card
You can take advantage of 0% interest deals and then transfer your balance over to a different credit card once the deal has expired, plus your installations will be covered by section 75 of the Consumer Credit Act. If you don't pay off your balance in full or transfer in time, interest rates can be steep. And you may not be able to get a big enough credit allowance to pay for certain measures.
Take a look at the Which? credit card comparison site to find the best credit card for you.
Green Deal Cashback
On 24 July 2014 the Green Deal Home Improvement Fund was closed, as all of the funding had been claimed. There will be another £120 million of funding available from April 2015. Although the details of next year’s cashback scheme won’t be released until nearer April 2015, read below to find out how the old scheme worked.
The Green Deal Home Improvement Fund (GDHIF) was launched in early June 2014. Initially, this scheme gave you the chance to earn up to £7,600 by carrying out energy efficient home improvements. Once the first £50m of funding was claimed, this was reduced to £5,600. Two days after this reduction, the fund was closed.
In order to be eligible for the GDHIF, you just needed an Energy Performance Certificate less than 24 months old. You also needed to apply for vouchers before installing any measures.
Green Deal Home Improvement Fund (GDHIF) payments and eligibility
Households could earn up to £1,000 by installing two energy-efficient measures from an approved list. These measures included condensing gas boilers on mains gas, double glazing (replacing single glazing), secondary glazing, replacement doors, cavity wall insulation, floor insulation, flat roof insulation, room-in-roof insulation, replacement warm air units, replacement storage heaters and waste water heat recovery systems.
You could claim up to 75% of the cost of installing solid wall insulation in your home (up to a maximum of £6,000).
Homeowners could also claim an extra £500 if they applied for GDHIF vouchers within 12 months of buying their property.
If you had a Green Deal Assessment, you could apply for a £100 refund. But only if you installed any of the recommended energy efficient measures after your assessment, and provided the assessment took place less than 24 months before applying for the refund.
All measures needed to be installed by either a certified Green Deal Provider or a certified Green Deal Installer and installation needed to take place within six months of applying for the GDHIF incentive voucher.
You didn't need to take out a Green Deal loan to qualify, and anyone who had already claimed money back using the old cashback scheme could still qualify for the GDHIF by installing further energy efficient measures.
Certain households may still be eligible for discounts off energy efficient measures through the Energy Companies Obligation scheme, especially if you are on a low income. Read our Which? guide to Energy Grants in order to find out more.