An Assessment of the Green Deal Loan

3D Green Home Ver2There are now various loans and grants to help make homes more environmentally-friendly. Because even though energy efficient modifications can save on utility costs in the long run, the improvements can take a lot of cash up front.

In the UK, the government launched the much anticipated Green Deal Loan at the end of January, 2013 to pay for eco-friendly modifications, which can save money in the long run. Energy bills have risen, and will only continue to do so. However, there has been substantial criticism on the loans’ high interest rates, policy and lack of guarantees.

By assessing what is and is not favourable in the UK’s Green Deal Loan, we gain better insight on what to look for in similar schemes.

How the Loan Works

The home is first assessed to see how the household lives and how energy efficient the home is. This already costs between £80 and £150. The assessor gives a report on suggested measures to be implemented, such as upgrading to new boilers and solid wall insulation. You, the homeowner, and a provider certified to offer the Green Deal Loan set terms of how extensively the home will be modified. Those changes are carried out. The loan is typically over a period of 10 to 25 years, and repayments are made as additions on energy bills.

How is This Different to Other Loans?

This is not a loan in the traditional sense, as the contract is attached to the property, rather than the person taking out the loan. This means that should the home be sold, the new owners will automatically assume responsibility of the loan.

Further, the loan has a ‘golden rule’, that states that the interest of repayments should be offset by savings made on energy bills.

Why Critics Are Sceptic

Firstly, the interest rate is relatively high at just under 7%. Secondly, the ‘golden rule’ is not policy, but rather simply a guideline. So there is no guarantee that savings on energy bills will be enough to balance out the high interest rate.

This is surely a commendable endeavour to undertake, but critics say that perhaps other loans may be less risky. For instance, home equity loans are often used to fund improvements on the property, and would offer substantially lower interest rates. Although, the fact that you do not have to continue paying the loan should you sell your property may be seen as an advantage.

However, the disadvantage of this is the uncertainty of how attaching a Green Deal Loan to the house itself will affect its saleability later. Potential buyers might be hesitant of taking on the responsibility of the loan.

The government, however, is also offering cashback deals to attract consumers, but this can vary from as low as £10 to as high as £650.

There are also other concerns, such as hidden costs, penalising early repayments.

Another major concern is the social one. Small to medium home improvement companies typically cannot be certified to do the modifications themselves, unless they partner with larger installation and energy companies. Although this policy is supposed to protect the public from sharks and scams, this points to a bureaucratic situation where ordinary tradesman, co-ops and small renewable-energy companies lose out, and the larger companies control the market.

When Choosing a Green Loan or Grant

Look for flexibility.

Look for personalised, ‘independent’ assessments of your actual energy use, rather than one just based on the average energy usage.

Decide whether you want a loan that will be attached to the house itself, or be the sole responsibility of the borrower.

Find a loan with interest rates that you are comfortable with.

Just because a loan is marketed as green and designed with the environment in mind, make sure you critically assess the terms and conditions. There are those out there hoping to simply capitalise on the goodwill that comes with eco-friendly conscientiousness. Always, always read the fine print. There are various options out there to help you make your home more energy efficient, you just need to find the one that suits you.