The Green Deal Is Back 2017
The Government’s energy efficient, home improvement loan scheme, the Green Deal, has just been relaunched – but this time it is being funded by the private sector. The first 3 loans have been issued according to Kilian Pender, the new Green Deal Finance Company chief executive.
The Green Deal was a Government scheme set up in 2013 that allowed consumers to apply for loans to have energy efficient measures installed in their homes and were paid back through their energy bills or in some cases, hefty grants were provided toward more expensive measures such as External Wall Insulation, leaving the homeowner to pay only a fraction of the overall installation cost.
There were 45 measures to choose from and the funding was administered by the GDFC.
It was shut two years ago but has recently relaunched. Under the new scheme, which is currently being soft launched, there are six green deal providers (GDPs) offering the loans and installation and this number is set to increase by the full launch at the end of September.
At present, we do not know how more expensive measures such as EWI )External Wall Insulation) will be implemented or if they will be financed in a similar way as before. However, as the new scheme is being largely funded with Private Sector backing, we feel that it is unlikely that loan free government subsidies will be offered. Only time will tell.
How will the loans work?
The benefit of taking out one of these loans is that you won’t have to stump up any money upfront because the loans are repaid through your electricity bills. In some cases involving the installation of more expensive measures, loans may be spread out up to a maximum term of 25yrs which should cover the expected lifespan of the product installed.
What has the Green Deal Finance Company Said?
According to the latest press release from the Green Deal Finance Company:_
The Green Deal Finance Company (“GDFC”) has begun financing loans through a number of select Green Deal Providers (“GDPs”) for the first time since July 2015, following the acquisition of the company from the UK Government and its shareholders in January 2017.
Relaunching Green Deal finance is part of a soft launch of GDFC, ahead of a wider rebrand and roll-out expected later in 2017. During this phase, the company will concentrate on the continual assessment and improvement of the Green Deal loan product and service offering to customers – including the route to market, customer experience and quality control.
Kilian Pender, CEO of the GDFC, said: “We are extremely pleased to announce the relaunch the Green Deal scheme and Green Deal loans. Since acquiring the business in January, we have received a very significant amount of support from government, energy efficient focused organisations, manufacturers and installer organisations amongst others, all of whom are eager to see the scheme continue where it left off and build further momentum.”
He continued, “Whilst there is still work to do to develop and improve the Green Deal product, we are delighted to be able to take this significant first step of making loans accessible to homeowners again to improve their homes through Green Deal finance. Given our focus on quality control and providing high levels of service to our customers and installer partners, we have taken the decision to start slowly through a select number of GDPs, although we hope to offer finance through a wider number over the coming months.”
Green Deal loans provide consumers with accessible financing to improve their homes through the installation of energy efficiency products. The loans can help landlords and tenants who wish to improve the comfort, value and energy efficiency of their property, but cannot afford the upfront cost of doing so. Loans are entered into between consumers and GDPs, and are financed by the GDFC. To begin with, Green Deal loans will be offered through a small number of approved GDPs, spread across the country, with other high-calibre installers set to be phased in over time.
The GDFC is currently raising debt finance through the peer-to-peer finance platform Abundance Investment (“Abundance”) in order to accelerate the development and implementation of an improved technology platform, aimed at simplifying and improving the customer journey. More than £2 million has been raised via Abundance in a little over four weeks since the raise was launched. The raise is now more than 50% subscribed, with £2 million of further investment available. Abundance’s GDFC bond offer carries an annual rate of return of 12% for 3 years. The bonds are eligible to be held in Abundance’s Innovative Finance ISA, so offering people a chance to earn a tax-free return. To invest in the GDFC Abundance bond, please visit www.abundanceinvestment.com
But what does this actually mean?
According to the leading Energy Saving website Greenage:-
• Rollout of the scheme will be slow, but the reason for this is that the GDFC want to get only quality installers signing up to it. As previously, this will be done under the same PAS2030 framework; however the GDFC will also be auditing a huge number of installs to ensure they are done to their own quality standards. The aim is to prevent cowboy builders entering the fray.
• Unlike traditional loans where the liability tends to be sat with the individual taking out the loan, in the Green Deal the GDFC attach the loan to the property. This means when it comes to selling the property, the new owner will be obliged to take on the existing Green Deal debt. This could put off potential buyers, knowing they are moving into a property with debt loaded on it; however we understand there are no early repayment charges, so when the homeowner does sell, they could pay back the loan (if they have the funds available) to prevent this being an issue.
• The average interest rate for the new Green Deal scheme is 9.3% APR. Typically, the loans will be paid back over 12 years for heating systems and 25 years for insulation measures. We did a quick search online and found Tesco offering a 10 year home improvement loan at the slightly better rate of 11.7% APR. Obviously if you can extend mortgages, then this blows both the Green Deal and other home improvement loans out the water, with rates as low as 1.25%. Even the 10 year fixed mortgage rates are 2.69%, so still a considerable improvement – but the Green Deal interest rate is certainly better than unsecured consumer loans, credit cards and payday loans.
• How much can you borrow under the Green Deal home improvement scheme? Well this is where things get a little complicated, but basically it is all to do with the expected energy savings of installing a boiler and then the lifespan of the measure being installed. Say a new energy efficient boiler saves you £50 a year (which is quite a big saving to be honest!) then you would be allowed to borrow £50 x the lifespan of the boiler (12 years). £50 x 12 years = £600. Bear in mind the £600 needs to include the interest you pay on the loan – so unfortunately, while it will help, it certainly won’t cover the cost of your new energy saving solution.
• When we spoke to GDFC, they were keen to stress that they could combine Green Deal finance with a top-up loan. The top-up loan would be in the form of traditional finance, so liability would sit with the loan taker. It begs the question of why not to just take a bigger loan in the first place!
• The time it takes to get a loan can be lengthy. Unfortunately, there is a huge amount of legislation around the Green Deal framework and as such it takes a great deal of time to get the finance plans written. You can waiver the cooling off period, which definitely speeds things up, but a Green Deal loan will still take longer to organise, compared with other loans. It will still be quicker than getting a mortgage, however!