Interest rates announced for Green Deal payment plans could be too high to provide the ‘transformative effects’ hoped for by the government
The Green Deal Finance Company’s initial interest rates for finance packages have been set at 6.96 per cent per annum.
Each Green Deal Finance Plan will also have an initial set up cost of £63 and an annual operating charge of £20, which Green Deal providers may choose to pass on to the householder.
The Green Deal Finance Company has defended the rates, saying they are comparable to the best high street rates for long-term secured loans. The government has continually argued that Green Deal financing will adhere to the scheme’s ‘Golden Rule’, meaning repayments are lower than the savings customers receive from their energy bills.
Labours shadow climate change minister Luciana Berger criticised the ‘sky-high interest rates’.
Sophie Pelsmakers, an architect and doctoral researcher at UCL’s Energy Institute said: ‘There are too few incentives for uptake to be meaningful to make a difference to the UK’s carbon balance sheet. While cash-back is offered as an incentive for early uptake; the unattractive high interest rates of 7 per cent or more and the complexity of the scheme means that take-up is likely to be low by householders and businesses.’
With interest rates this high anyone who can raise capital elsewhere will not use the scheme
Founder of Jerry Tate Architects, Jerry Tate added: ‘My concern is to do with the financial side of the ‘deal’. Essentially this is a loan scheme to fund home improvements, and from what I can see the basic rate of interest will be 7% to 9.5%. With interest rates this high anyone who can raise capital elsewhere will not use the scheme (even with the initial cashback offer), and the risk is that lower income households become saddled with a high interest debt, meeting repayments which do not resemble the energy bills savings they are making.’
Sian Moxon of Jestico + Whiles said: ‘The associated loans are likely to have high interest rates, and the wording of the ‘Golden Rule’ may mean improvements do not pay back in time. Also, the scheme is likely to be taken up by middle class households and there will be credit checks on applicants, therefore it is unlikely to alleviate fuel poverty.’
The wording of the ‘Golden Rule’ may mean improvements do not pay back in time
The Residential Property Surveyors Association (RPSA) has also raised concern about the financing scheme. Chairman of the RPSA Alan Milstein said: ‘For many consumers, taking on a Green Deal loan may not be the most cost effective mechanism to fund any green improvements to their property. With early repayment penalties and the uncertainty surrounding how having a Green Deal loan attached to your property will impact on the future saleability of the property, for many homeowners it may be advisable to look at alternative ways to fund any energy efficiency measures, which they plan to introduce.’
These concerns come after a study by a leading government advisory board found that the costs of retrofitting remain too high to actually be covered by the Green Deal.
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