UK launches government-backed loans for home energy upgrades

Households across the United Kingdom can now access interest-free or low-interest loans to fund energy efficiency improvements, a move designed to reduce annual energy bills by hundreds of pounds without requiring upfront capital. The new Warm Home Loans scheme, which commenced on Tuesday, provides financing ranging from £7,500 to £35,000 to support the installation of low-carbon technologies such as heat pumps, batteries and solar panels. By spreading repayments over several years, the government aims to make clean energy upgrades accessible to thousands of additional families who previously could not afford the initial installation costs.

Major energy suppliers have partnered with various lenders to offer these loans directly to customers at rates lower than those typically found on the high street. British Gas has collaborated with Tandem Bank, while E.On has joined forces with Homeserve to facilitate this access. Under the scheme, homeowners replacing gas boilers with air-source heat pumps can secure loans of up to £10,000, whereas those opting for ground-source systems may borrow up to £35,000. These loans can be combined with existing government grants of up to £9,000 per year, which are available for households installing replacements for fossil fuel heating systems. The government estimates that installing a heat pump, battery and solar panels could save households up to £550 a year, with potential savings rising by a further £300 if a time-of-use tariff is adopted.

The introduction of the loan scheme coincides with record demand for low-carbon home energy upgrades driven by soaring energy costs. Miatta Fahnbulleh, the energy secretary, stated that energy is an everyday essential that must remain affordable for everyone. She emphasised that these government-supported loans will help families upgrade their homes with no upfront costs, making them warmer and cheaper to run. Chris Norbury, chief executive of E.On UK, noted that a recent trial in Coventry showed fuel-poor customers saved more than £250 a year on average by combining a home battery with a time-of-use tariff. He described the new scheme as an opportunity to remove barriers to low-carbon technologies.

The launch of the Warm Home Loans scheme took place a day before Chancellor John Healey delivers his first budget on Wednesday. Reports indicate the budget will include plans to scale back heat pump grants made through the boiler upgrade scheme. While the scheme is not expected to be scrapped entirely, sources suggest that hundreds of millions of pounds will be cut from its £2.7bn five-year budget. Treasury officials reportedly consider the current grants a subsidy used mainly by middle-class households. Previously, grants of up to £7,500 helped meet the £13,600 cost of installing a heat pump, leaving households with a significant outlay. It is understood that grants of up to £9,000 a year will likely remain available for households not connected to the gas grid, who rely on high-cost heating oil. These grants can be used alongside the new low-interest loans to cover the full cost of a heat pump. Other lenders participating in the scheme include HTG Finance, Propensio, Secure Trust Bank, Selina Finance, South Manchester Credit Union, Sunsave, The Money Co-op and This Bank.