Homeowners will be besieged with offers of energy efficient improvements to their home with the headline of ‘no up-front’ costs but as with most deals which appear to good to be true, there are pitfalls.
The reality is that Green Deal providers foot the bill with the homeowner repaying the debt over time via a charge on their energy bills. Sounds simple.
The arrangement is essentially a loan and therefore protection is provided under the Consumer Credit Act. This means the provider is obliged by law to provide certain information, such as the total charge for credit, any APR, how repayments are calculated, information about cancellation rights etc. That’s the good news.
The bad news is that, like anything bought on credit, improvement works will cost significantly more than they would if paid for up front. As to whether the hem owner will be advised of cheaper alternatives will remain to be seen.
There is a sort of a safeguard through what is known as a "Golden Rule" – that the cost of repaying the loan should not exceed the estimated energy savings each period. So, for example, if it is estimated you will save £50 a quarter on your energy bills, your Green Deal provider may not recover more than £50 a quarter from you to pay back your loan. But the key word here is ‘estimate’ what if the actual savings are less? Does this mean the provider will refund the difference? In short the answer is an emphatic no. The risks will be explained but I suspect little emphasis will be given to the same.
The other downside is that the ‘debt’ follows the property and not the person who took the loan out. This means when the homeowner sells it will be the buyer who picks up responsibility for the liability. Purchasers may not be able to afford the repayments, particularly first time buyers.
The scheme seeks to address this concern in two ways. First, there are extensive rules about disclosure – anyone selling a property must tell a prospective buyer if there is a Green Deal attached to it; the buyer must be notified before the seller accepts an offer at the very latest. Second, the code of practice states that if the occupier of the house changes, the provider should reassess the affordability of the plan for the new occupant.
This presents practical problems and could make a property with a Green Deal attached more difficult and/or more expensive to sell. The disclosure requirements are strict, and a buyer must consent to any Green Deal in writing. A homeowner who fails to obtain such consent will have to pay compensation. What if a buyer does not want to consent? There is little the seller can do beyond negotiating. They could, for example, offer to pay off the loan in full. In such cases, however, they should be prepared to pay an early settlement fee, and may well find themselves out of pocket if a buyer does not agree to any corresponding increase in the purchase price.
Even if a buyer does consent to the Green Deal, the reassessment requirement may disclose no or little saving given the buyer's needs and energy usage will inevitably differ. A buyer may therefore want the reassessment done before deciding whether to make an offer on a property, all of which is likely to take time. This could cause delay or even the collapse of the transaction.
The idea is good but when you drill down and consider the small print as well as the complications that arise on the sale of the property, one is bound to seriously question the benefit of the estimated short term saving.