UK launches Warm Home Loans scheme for heat pumps, solar and batteries

Households across the UK can now apply for interest-free or low-interest loans to fund heat pumps, home batteries and solar panels, under the government-backed Warm Home Loans scheme that launched on Tuesday.

Loans range from £7,500 to £35,000. The government says the scheme will allow "thousands more households" to fit clean energy technology and spread the repayments over many years, with no upfront cost.

Suppliers and lenders

British Gas and E.On are among the energy suppliers offering the loans to customers, in partnership with Tandem Bank and Homeserve respectively. The rates are discounted compared with those available from high street lenders.

Other lenders taking part include HTG Finance, Propensio, Secure Trust Bank, Selina Finance, South Manchester Credit Union, Sunsave, The Money Co-op and This Bank.

Heat pump limits

Households replacing a gas boiler with an air-source heat pump can borrow up to £10,000. Those choosing a ground-source system can borrow up to £35,000. Both can also draw on the government's existing scheme, which offers grants of up to £9,000 a year for households replacing fossil fuel heating.

The government advises that installing a heat pump, battery and solar panels could save a household up to £550 a year on energy bills. It says savings could rise by a further £300 a year with a time-of-use tariff.

Energy secretary Miatta Fahnbulleh said the loans would help families upgrade their homes "with no upfront costs" to make them warmer and cheaper to run.

Chris Norbury, chief executive of E.On UK, pointed to a recent trial in Coventry. Fuel-poor customers who combined a home battery with a time-of-use tariff saved more than £250 a year on average, he said. The tariff charges lower rates outside peak demand hours. He described the loan scheme as an opportunity to go further by removing barriers to low-carbon technologies.

Budget backdrop

The Guardian reported that the terms were set out a day before chancellor John Healey delivers his first budget on Wednesday. The budget is reportedly set to include plans to scale back grants under the boiler upgrade scheme.

The scheme is not expected to be scrapped. Sources told the Guardian that hundreds of millions of pounds would be cut from its £2.7bn five-year budget, because Treasury officials see it as a subsidy used mainly by middle-class households.

The scheme has typically provided grants of up to £7,500 towards the £13,600 cost of installing a heat pump, leaving households with a significant outlay to cover.

The Guardian understands that grants of up to £9,000 are likely to remain for homes off the gas grid that rely on high-cost heating oil. These could be combined with the new loans to cover the full cost of a heat pump.

Soaring energy costs have driven record demand for low-carbon home energy upgrades over the past year, according to the Guardian's earlier reporting.