UK to create home insulation loan scheme

The UK government has passed into law a new scheme to insulate the country’s homes. Despite claims that the move was too costly, the law was passed on Monday as part of the government’s ‘green deal’ package. The law means homeowners can borrow up to £10,000 at an interest rate of 7.5 per cent to pay for home improvements including renewable energy, loft and wall insulation and draft proofing.

The interest rate is a key battle ground in parliament, with Labour criticising the government for a prohibitively costly loan scheme, which will not provide any incentive to upgrade homes. "If it's done properly, a pay-as-you-save energy efficiency scheme could cut carbon emissions, create jobs and lower bills for families, but the Green Deal must be a good deal for consumers," said Caroline Flint, the shadow secretary for energy and climate change. The current UK base rate set by the Bank of England is 0.5 per cent.

The government has hit back arguing that small loans taken out over shorter periods would still meet its golden rule of saving more money than the cost of the improvements. The scheme is set to begin in the autumn, along with an announcement on how £200million of incentive money will be spent. There is also likely to be a £300million investment from the Green Investment Bank, which will help finance the loan scheme at interest rates potentially lower than 7.5 per cent.

The DECC is obviously fully behind the scheme, which it says, once the growing cost of energy is taken into consideration, represents a real value for money investment for the consumer. A representative said, "[The interest rate] compares very well for those on the lowest incomes that often have poor credit ratings and can often only access loans at high, punitive rates. The Green Deal will not be based on an individual's credit rating as it is linked to the property not the occupants."