Green Deal Scheme To Provide Unsecured Home Improvement Loans

The Green Deal scheme is due to roll out next Autumn and is part of the Governments Energy Bill. It is to provide unsecured loans to homeowners and businesses for any building or home improvements that makes the property more energy efficient. Roof and wall insulation, a new boiler, solar panels etc. can all be paid for and fitted with a Green Deal loan.

There is no deposit required on the work to be done and they won’t be doing a credit check either. The repayments are attached to your energy bill and should you sell the property and move on to pastures new the remainder of the debt is passed on to the new owner of the property – it doesn’t go with you.

It all sounds pretty good but the Green Deal Finance Company – a not for profit consortium of companies including British Gas, EON, B&Q and HSBC who have signed a memorandum agreeing to offer unsecured loans to homes and business wanting to make energy saving improvements -  expect the interest rates to be between 6% and 9% yet a homeowner with a mortgage can easily find a home improvement loan today at a rate much lower than this so you are going to have to way up the Green Deal option carefully if you are considering making any kind of energy saving investment in your property.

Here’s what Sam Arie of the Guardian had to say about the expected cost of the new Green Deal scheme.

“According to the Bank of England, a conventional, unsecured personal loan currently costs between 11% and 16%. It is hard to see how a Green Deal loan, which is neither secured against collateral (like a mortgage) or credit checked against the individual (like a personal loan) could possibly be cheaper. The Green Deal will also have to cover the cost of a certified home survey and of administrating payments through the energy company. So the effective cost at market rates could easily reach 19% or 20% – in other words, about the same as a credit card or a personal overdraft.”

“Taken together, the implication of these points is that the Green Deal will fail if it is offered at commercial lending rates. Take up will be limited to a segment of households that are less affluent, already economical in their energy usage, and which may well have difficulty repaying the loans in full. Meanwhile, the larger, more affluent households – which have the greatest potential to make carbon savings – will not participate, because they can already borrow the money elsewhere and at a cheaper rate.” Read the full article here.

The Energy Bill became law today – 19th October 2011 – and Energy Secretary Chris Huhne told reporters:

“A huge hurdle has been passed in bringing the Green Deal closer to making homes warmer and cheaper to run. When it’s introduced, the Green Deal will be as easy as ABC by making work affordable, providing bespoke independent advice and choice in the market from well-known and trusted high street names.”

The fact that the debt gets passed on to a new owner means any work done through the Green Deal scheme will not increase the value of your property although in theory the cheaper energy bills and the fact the work has already been done should at least make it more desirable to the market.

If an unsecured loan to cover some energy saving improvements paid back via your gas bill appeals, you can find details of the Green Deal scheme by clicking here.