UK Launches £7,500-to-£35,000 Loans for Heat Pumps and Solar

UK households can now borrow between £7,500 and £35,000 at zero or low interest to install heat pumps, solar panels and home batteries, under a government-backed scheme launched on Tuesday. The government claims the full package can cut energy bills by up to £550 a year — a figure that assumes households install all three technologies together.

The Warm Home Loans scheme pairs energy suppliers with lenders. British Gas is working with Tandem Bank; E.On has partnered with Homeserve. The loans carry discounted rates compared with high street lenders, according to the announcement, though the government has not published the actual interest ranges for the "low-interest" tier.

Households replacing a gas boiler could borrow up to £10,000 for an air-source heat pump or up to £35,000 for a ground-source model. They can combine that borrowing with existing government grants of up to £9,000 a year for fossil-fuel heating replacements. The arithmetic matters: a typical heat pump installation costs £13,600, and the boiler upgrade scheme has typically covered only up to £7,500 of that, leaving households to fund the £6,100 gap themselves.

How much can households actually save?

The government puts the headline saving at up to £550 a year for a home fitted with a heat pump, battery and solar panels. Add a time-of-use tariff — which charges less for electricity consumed outside peak hours — and the claimed saving rises by a further £300 a year, to roughly £850.

E.On UK's chief executive, Chris Norbury, offered a smaller, tested number. He said a recent trial showed fuel-poor customers in Coventry saved more than £250 a year on average by combining a home battery with a time-of-use tariff. He called the Warm Homes Loan scheme "an opportunity to take that further" by "removing barriers to low-carbon technologies."

The gap between the £850 headline and the £250 measured result is wide, and the government's own figures say "up to" — actual savings will depend on a household's energy use, property type and tariff choices. The announcement does not say how many households the loans are expected to reach in year one.

Why now? What happens to the grants?

The launch landed one day before Chancellor John Healey delivers his first budget on Wednesday. That budget reportedly includes plans to scale back heat pump grants paid through the boiler upgrade scheme, although the scheme is not expected to be scrapped.

Sources say hundreds of millions of pounds will be cut from the scheme's £2.7 billion five-year budget because Treasury officials view it as a subsidy used mainly by middle-class households. The Guardian understands that grants of up to £9,000 a year will likely survive for homes not connected to the gas grid that rely on high-cost heating oil. Those grants can be stacked with the new loans to cover the full cost of a heat pump — the one case where the combination genuinely eliminates the upfront outlay.

Energy Secretary Miatta Fahnbulleh framed the loans in affordability terms. "Energy is an everyday essential that must be affordable for everyone," she said. "These government-supported loans will help families across the UK upgrade their homes with no upfront costs to make them warmer and cheaper to run."

Her promise of "no upfront costs" holds only for the loan itself; households outside the off-gas-grid group will still need grants, savings or borrowing beyond the loan ceiling to close installation costs in many cases.

The government says soaring energy costs have driven record demand for low-carbon home upgrades over the past year, and it expects "thousands more households" to adopt the technologies by spreading repayments over many years.

Beyond British Gas and E.On, the lender roster includes HTG Finance, Propensio, Secure Trust Bank, Selina Finance, South Manchester Credit Union, Sunsave, The Money Co-op and This Bank. What the announcement leaves open is the total lending capacity those partners have committed — and whether discounted credit can replace grant money being withdrawn at the same moment.