Improving the energy efficiency of a property can require a significant upfront investment. Solar panels, battery storage and low-carbon heating systems can all help reduce energy costs and improve a property’s efficiency, but finding the money to pay for the work can be a barrier.
The Warm Homes Loan Scheme (WHLS) is designed to make it easier for eligible homeowners and private landlords to finance certain energy improvements through participating lenders. As the scheme develops, here’s what homeowners and landlords need to know about how the proposed scheme works, what improvements may qualify and what to consider before taking out finance.
What is the Warm Homes Loan Scheme?
The Warm Homes Loan Scheme is a government-backed finance initiative forming part of the wider Warm Homes programme. Rather than providing households with a cash grant, government funding is intended to help participating lenders offer loans for eligible energy-efficiency and low-carbon improvements at a reduced cost of borrowing.
The scheme is aimed at people who may be able to afford monthly repayments but don’t necessarily have enough savings available to fund improvements themselves. Around £300m of government funding is planned for the scheme. Participating lenders will be responsible for creating their own loan products, assessing applications and deciding whether an applicant meets their lending criteria.
This means the exact finance available can vary between lenders.
How much could the borrowing cost?
One of the main attractions of the Warm Homes Loan Scheme is the potential for reduced interest rates. The scheme’s published framework is intended to support a reduction of up to around five percentage points from a lender’s standard nominal interest rate for qualifying loans, subject to the scheme’s funding limits and conditions. For example, purely as an illustration, a lender’s normal rate of 7% could potentially be reduced to around 2%. However, this does not mean every WHLS loan will be interest-free.
The actual interest rate, APR, fees, loan term and repayment arrangements will depend on the finance product offered by the participating lender. When comparing loans, homeowners should therefore look beyond the headline interest rate and consider:
- The APR
- Monthly repayments
- The total amount repayable
- Any arrangement or other fees
- The loan term
- Early repayment charges
- Whether the loan is secured or unsecured
Which energy-saving improvements could be covered?
The scheme is intended to support a range of renewable-energy and low-carbon technologies. However, not every lender will necessarily offer finance for every eligible measure.
Potentially supported improvements include:
| Home improvement | Potential scheme limit |
| Solar panels | Up to £15,000 |
| Battery storage | Up to £15,000 |
| Air-to-water heat pumps | Up to £20,000 |
| Ground- or water-source heat pumps | Up to £35,000 |
| Biomass boilers | Up to £20,000 |
| Air-to-air heat pumps | Subject to scheme arrangements |
| Domestic wind and micro-hydro | To be confirmed |
| Heat networks | To be confirmed |
These figures should be treated as scheme limits rather than guaranteed loan amounts. A lender may offer less depending on its own lending criteria and the cost of the proposed installation. Other requirements may also apply, including certification of the equipment and the use of appropriately accredited installers.
Can solar panels and battery storage be financed?
Solar panels and battery storage are among the technologies the scheme is intended to support. Solar panels can generate electricity for use within the property, potentially reducing reliance on electricity purchased from the grid. Battery storage can then allow surplus electricity to be stored and used later.
For homeowners considering both technologies, combining solar and battery storage can be an option worth investigating. However, the suitability of a system will depend on factors such as the property’s electricity consumption, roof characteristics, available space, existing electrical system and how much energy is used during the day and evening.
A professional assessment should be carried out before committing to finance.
Can the Warm Homes Loan Scheme be used with other grants?
In some circumstances, WHLS finance may be used alongside other forms of government support. For example, homeowners installing an eligible heat pump may potentially be able to use the Boiler Upgrade Scheme (BUS) alongside WHLS finance, subject to the rules of both schemes. This is important because a grant could reduce the amount that needs to be financed.
However, government schemes can have specific eligibility requirements and these can change. Anyone considering combining funding should check the current rules before entering into a contract.
Who is the scheme aimed at?
The Warm Homes Loan Scheme is primarily intended for:
- Owner-occupiers
- Eligible private landlords
There is not expected to be a single scheme-wide household income threshold that determines eligibility. Instead, individual lenders can apply their own affordability, credit and property checks. Other criteria may also apply, including requirements relating to the property and its Energy Performance Certificate (EPC).
Landlords with multiple properties may potentially be able to apply for separate finance for different properties, although each application will be subject to the relevant lender’s criteria.
The initial scheme is not intended to provide finance for businesses or borrowing through special-purpose companies.
Warm Homes Loan Scheme vs energy grants
It’s important to understand the difference between finance and grant funding.
A loan needs to be repaid, whereas a grant generally doesn’t need to be repaid provided the applicant meets the relevant conditions.
The Warm Homes Loan Scheme could therefore be more appropriate for someone who can comfortably manage monthly repayments but doesn’t want to fund an installation entirely from their savings.
Grant schemes, on the other hand, may be more suitable for households that meet specific income, benefits, property or local eligibility requirements.
Before choosing a funding route, it’s worth checking whether you qualify for grant support as well as considering finance.
What should you consider before taking out a loan?
Financing a home-energy improvement is a significant financial commitment. Even if the installation is expected to reduce energy bills, future savings are not guaranteed.
Before agreeing to finance, consider:
1. Is the technology right for your property?
Not every home is suitable for every renewable-energy or heating technology. A professional assessment can help determine what is practical and what system size is appropriate.
2. How much could you realistically save?
Energy savings depend on how the system is designed and used. Factors such as household consumption, energy prices, weather and property characteristics can all affect the outcome.
3. What will the finance actually cost?
Compare the APR, monthly repayments and total amount repayable, rather than focusing solely on the advertised interest rate.
4. Is the borrowing secured?
Check whether the loan is secured against your property and understand what that means for you if you experience financial difficulties.
5. What happens if you move house?
Find out whether the loan can be transferred, whether it needs to be repaid when the property is sold and whether any early repayment charges apply.
6. What warranties are included?
Check the warranties covering both the equipment and installation. It’s also worth understanding who will deal with repairs or maintenance if something goes wrong.
Don’t make a decision based on projected savings alone
Renewable-energy systems and low-carbon heating can provide significant benefits, but projected savings should always be treated as estimates rather than guarantees.
Your actual results will depend on the property’s characteristics, system design, household energy consumption, maintenance and future energy prices.
The best approach is to compare the cost of the installation, expected performance and finance repayments together.
Is the Warm Homes Loan Scheme worth considering?
For homeowners and private landlords who want to make energy improvements but would prefer to spread the cost, the Warm Homes Loan Scheme could provide another way to fund an installation.
However, the scheme shouldn’t be viewed as a replacement for grants or as a guarantee of cheap or interest-free finance. The most suitable option will depend on the property, the improvement being considered, the available funding and the individual’s financial circumstances.
As the scheme develops and participating lenders launch their products, homeowners and landlords should compare the available options carefully before committing to finance.
Thinking about solar panels, battery storage or low-carbon heating? A professional assessment can help you understand which technologies could work for your property and what the potential costs and benefits might be. Contact our team today to find out more.