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"Green Deal" for Homeowners

Coming hard on the heels of news about a possible triple dip recession if the economy doesn't grow this quarter, homeowners at last got some potentially cheering news on the financial front. The government has announced a new scheme, called the 'Green Deal' which will offer homeowners the opportunity to take out long term loans which can be used to make energy saving home improvements.

Coming hard on the heels of news about a possible triple dip recession if the economy doesn't grow this quarter, homeowners at last got some potentially cheering news on the financial front. The government has announced a new scheme, called the 'Green Deal' which will offer homeowners the opportunity to take out long term loans which can be used to make energy saving home improvements. Under the terms of the scheme, the householder can install energy efficient products such as new boilers, loft and wall insulation without the need for upfront costs. The UK has an ageing housing stock and the scheme is part of the government's campaign to lower carbon emissions and meet targets.

The loan scheme will be administered by the Green Deal Finance Company, which is a not-for-profit company with government backing. Users of the scheme will have an initial visit from an assessor who will take details about their energy use. The homeowner will then receive free advice on improvements which can lower energy bills. This advice will come from a selection of pre-approved Green Deal suppliers. Customers will then take out a loan payable for long periods of up to 25 years. The loan is supplied by the Green Deal Finance Company but is repaid through electricity bills.
 
According to Nick Clegg, the Deputy Prime Minister, the Green Deal will help people 'stay warmer for less' but campaigners have questioned the value of the deal claiming that it will not stop a rise in fuel poverty. There is also no guarantee that the improvements will actually save the consumer any money. Worryingly, there is no formal cap on the amount that can be borrowed, even though it is estimated that anything over £10,000 could not be justified by lower energy costs.
 
The APR on the Green Loans is thought to be capped at 6.92% but with a £63 set up charge and annual fees of £20, the actual rate repayable rises to a shade under 8% for a £5,000 loan taken out over 10 years. Organisations like Which? magazine have pointed out that this is towards the high end of rates for standard home loans and have questioned whether the scheme truly represents good value for consumers. Unlike any normal loan, the debt stays with the house when the owner moves and any new owners will have to pick up the bill. The government plans to introduce a cash back incentive to promote uptake on the loans which will be awarded on a first-come, first-served basis from an initial £125 million pot.

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