Homes may qualify for cheap or interest-free loans for solar panels

The government’s Warm Homes Loan Scheme is now open, providing low-cost and interest-free financing for solar panels, batteries and heat pumps

Households can now apply for government-backed loans to help meet the upfront cost of solar panels, batteries and heat pumps after the launch of the Warm Homes Loan Scheme.

The scheme offers no- and low-interest finance for home energy upgrades, letting households spread payments over several years instead of paying the full installation cost at the outset.

Initially, ten lenders are taking part, with some offering interest-free borrowing and repayment terms stretching to as long as 30 years in certain cases. More lenders and products are expected to join as the scheme expands.

The government has pledged £300m of grant capital to support the scheme by lowering the cost of finance offered by participating lenders.

It may be especially important for solar panels, as households have typically had to find several thousand pounds upfront or rely on comparatively expensive borrowing.

Lloyd Greenfield, founder and chief executive of solar installer Glow Green, said cheaper finance could make rooftop solar available to many more homeowners.

“I think this is going to open up a massive part of the market,” Greenfield said. “There are so many people out there who aren't as fortunate to have savings of £10,000 or £15,000.”

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How does the Warm Homes Loan Scheme work?

Although the scheme is government-supported, the loans themselves are not issued directly by the government.

Instead, participating banks, credit unions and specialist lenders provide the finance. Government backing helps reduce the interest rates they would normally charge, with borrowers potentially seeing cuts of up to five percentage points.

The rate you receive depends on the lender and the product you choose. Some of the first loans available through the scheme are interest-free, while others carry interest, so borrowers should compare options rather than assuming every Warm Homes Loan costs the same.

The government gives an example of a homeowner borrowing £10,000 over seven years. At 8 per cent interest, monthly repayments would be around £155. It says support through the Warm Homes Loan Scheme could reduce repayments by as much as £285 a year.

Repayment periods also vary. Some borrowers may repay over a relatively short period, while terms of up to 30 years are available in certain cases.

You do not apply to the government for a Warm Homes Loan. Instead, applications go through a participating lender, either directly or, where available, through an installer or retailer arranging the work, or through a mortgage provider.

“There’s nothing that the homeowner needs to do,” Greenfield said. “They don't need to apply for a grant or jump through loads of hoops.”

Even so, applicants still need to pass the lender’s normal credit, affordability and eligibility checks.

The government advises borrowers to consider the total amount they will repay over the life of the loan, along with the monthly payment and interest rate. A longer term can lower monthly costs, but may increase the total interest paid if the loan is not interest-free.

How much can you borrow for solar panels?

The amount available under the Warm Homes Loan Scheme depends on the technology being installed.

For solar PV, the maximum supported loan is £15,000. A separate limit of up to £15,000 applies to electrical battery storage, meaning households installing solar panels and a battery together may be able to finance both through the scheme.

The other maximum loan amounts are:

• Air-to-water heat pump: £20,000
• Air-to-air heat pump: £10,000, once MCS certification becomes available
• Ground-source heat pump: £35,000
• Biomass boiler: £20,000
• Heat network connection: £7,500
• Micro-renewable system: £20,000

Homeowners installing a heat pump may also be able to combine a Warm Homes Loan with a grant of up to £9,000 through the Boiler Upgrade Scheme. In Scotland, Home Energy Scotland support can also be used alongside the loans.

With the exception of heat network connections, installations under the scheme must be carried out by an MCS-certified installer. Homeowners cannot do the work themselves.

Who can apply for the Warm Homes Loan?

To be eligible, you must own the property you are applying for, either outright or with a mortgage. The property must be residential and located in the UK.

That means the scheme can be used by qualifying homeowners and private landlords, though individual lenders may set additional requirements.

Unlike some solar grants and funding schemes aimed specifically at lower-income households, applicants must be able to pass normal affordability and credit checks.

People on lower incomes may instead be able to access free or subsidised energy-saving improvements through schemes such as the Warm Homes: Local Grant.

Greenfield said affordable finance would widen the appeal of rooftop solar beyond households able to buy a system outright.

He described the market so far as being in an “early adoption phase”, led by households able to use savings on solar in exchange for lower electricity bills in the years ahead. “I think we'll move from this early adoption phase into what I think will be more of a mass adoption,” he said.

Could solar savings cover the repayments?

One possible advantage of cheaper, longer-term borrowing is that some households may find the savings from solar panels cover a meaningful share of their repayments.

The government estimates that installing solar panels, battery storage and a heat pump together could save a household up to £550 a year on energy bills, with a further £300 a year potentially available when paired with a time-of-use tariff.

However, those figures relate to a package of technologies rather than solar panels alone, and actual savings will vary significantly from home to home.

Greenfield said that, in theory, some households could see savings exceed financing costs, though he stressed Glow Green could not promise that outcome to customers.

Whether that happens will depend on the cost and size of the installation, the interest rate and loan length, how much electricity the panels produce, how much is used in the home and how much is exported to the grid.

Households should compare the full cost of borrowing with likely energy savings rather than assuming lower monthly repayments automatically make the installation profitable.

Where can I get a Warm Homes Loan?

Ten lenders are initially offering loans through the Warm Homes Loan Scheme:

• HomeServe Finance
• Hometree Finance
• The Money Co-op
• Propensio
• Secure Trust Bank
• Selina Finance
• South Manchester Credit Union
• Sunsave Energy
• Tandem Bank
• This Bank

More lenders and finance products are expected to be added as the scheme develops.

Applications can be made directly to a participating lender or, depending on the product, through an installer or retailer when arranging home energy improvements. Some mortgage providers may also offer Warm Homes Loan products.

Not every lender offers the same interest rate, repayment period or installer choice. Some work only with selected installers, while others let borrowers choose any eligible MCS-certified installer.

It is worth comparing both the installation quote and the finance terms before signing anything. Check the interest rate, monthly repayment, length of the loan and total amount repayable, as well as whether you are tied to a specific installer.