Households across the UK can now cut their energy bills by hundreds of pounds a year at no upfront cost by applying for interest-free or “low-interest” loans to fund upgrades such as heat pumps, batteries and solar panels.
The government-backed Warm Home Loans scheme, which launched on Tuesday, could mean thousands more households are able to access low-carbon energy alternative technologies, thanks to loans ranging from £7,500 to up £35,000.
Energy suppliers including British Gas and E.On have partnered with lenders from Tandem Bank and Homeserve respectively to offer the loans directly to customers at a discounted rate compared with those offered by high street lenders.
People interested in swapping their gas boiler for an air-source or ground-source heat pump could secure loans of up to £10,000 or £35,000 respectively, while also drawing on the government’s existing scheme which offers grants of up to £9,000 a year for households installing the replacements for fossil fuel heating.
Installing a heat pump, battery and solar panels could save households up to £550 a year on their energy bills, rising by a further £300 a year with a time-of-use tariff, according to the government.
Soaring energy costs have led to record demand for low-carbon home energy upgrades over the last year, and the government believes the loan scheme means “thousands more households” will be able to cut their energy bills by fitting clean energy technology and spreading repayments over many years.
Miatta Fahnbulleh, the energy secretary, said: “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.”
Chris Norbury, the chief executive of E.On UK, said that a recent trial showed that fuel-poor customers in Coventry were able to save more than £250 a year on average by combining a home battery with a time of use tariff that charges lower rates for using energy outside peak demand hours.
He said the Warm Homes Loan scheme was “an opportunity to take that further” by “removing barriers to low-carbon technologies”.
The government set out the terms of the new scheme a day before the chancellor, John Healey, delivers his first budget on Wednesday, which reportedly will include plans to scale back heat pump grants made through its boiler upgrade scheme.
The scheme is not expected to be scrapped altogether, but sources say hundreds of millions of pounds will be cut from its £2.7bn five-year budget because Treasury officials consider it a subsidy used mainly by middle-class households.
It has typically provided grants of up to £7,500 to help meet the £13,600 cost of installing a heat pump, meaning households have still required a significant outlay to make up the difference.
The Guardian understands that grants of up to £9,000 a year are likely to remain available to households that are not connected to the gas grid and are forced to rely on high-cost heating oil. These grants could be used alongside the low-interest loans to cover the full cost of a heat pump.
Other lenders taking part in the Warm Home Loans scheme include HTG Finance, Propensio, Secure Trust Bank, Selina Finance, South Manchester Credit Union, Sunsave, The Money Co-op and This Bank.
