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Energy Performance – funding in detail

In our previous post, we discussed the Government’s guidance on the minimum level of energy efficiency required in April 2018 for private rented properties.

In this post, we will discuss in detail the Green Deal funding option which is available for the recommended improvements. In summary, the funding that a landlord may rely on can be one or a combination of the following:

  1. A Green Deal Plan;
  2. Energy Company Obligation or similar scheme;
  3. Funding provided by central government or local authority or third party at no cost to the landlord;
  4. A combination of any of the above.

Original Green Deal Plan

The original Green Deal scheme introduced by the government in 2013 was abandoned in 2015 due to a low take-up. The loans that were taken up still continue today but it is no longer possible to apply for these loans under the original Green Deal loan scheme. These loans were issued by the Green Deal Finance Company (GDFC) which has been sold to a consortium of private companies.

New Green Deal Plan

The new privately owned GDFC is now offering Green Deal loans in a similar way to the original green deal plan. However, the same restrictions apply along with tighter limits on the length of loans. This means that many may consider that the Green Deal is not the right option for them.

The loans are repaid as part of the property’s energy bill by the bill payer in regular instalments. It is for this reason that many consider this deal to be beneficial for landlords. However, it is not without its complications.

Some issues of concern include that:

  • only a small number of loans have been issued partly due to the small number of approved installers;
  • the loan is attached to the property meaning that any future purchaser will need to adopt the debt;
  • loans take some time to be issued due to the amount of legislation that surrounds the deals, and finally
  • the interest rate of the loan could be as high as 9.3% APR.

The other complicated factor of the deal is how much you can borrow. Most would expect to be able to borrow exactly what is needed for the recommended improvements because of the ‘no cost to landlord’ principle. However, the amount is based on the expected energy savings of e.g. installing a boiler and then the lifespan of the boiler. So, for example, if the new boiler saves you £23 a year then you would be allowed to borrow £23 x the lifespan of the boiler which has a maximum of12 years. £23 x 12 years = £276. This £276 will need to include the interest payment on the loan and is therefore very unlikely to cover the whole cost of a new boiler today- no matter how hard you look! This restriction is in place due to the ‘Golden Rule’ defined in the Energy Act 2011 which states that repayments in the first year cannot exceed the savings in the same period.

It is possible to obtain a top-up loan where there is a short fall. However, the top up loan is in the traditional form and sits with the loan taker. This of course means that the loan is no longer at ‘no cost to the landlord’ if it is taken.

So, while the old government Green Deal has indeed been abandoned this new privately funded plan is not without its complications and may not be the best option for some landlords. However, for those landlords considering possible works the best option is to find a local Green Deal provider and request an assessment. Once the assessment is carried out landlords can then consider whether it’s the right deal for them.

Finally, we have taken the liberty of looking at many Green Deal providers websites and it is unfortunate that many make no reference to the loan interest rates or the possible need for a top-up loan so caution and financial advice is strongly recommended.

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