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Let's not kill the Green Deal with negativity before it's had a chance

Posted by Cathy Debenham on 28 January 2013 at 10:05 am

Today, at last, the Green Deal is open for business. I struggle to think of any proposal that's been so talked about (and so derided) before it even started. So it's not surprising that its launch has been met with a tide of negativity too: it's not ambitious enough say some. Others focus on the interest rates - which are too high. No one knows about it (in fact research shows that one in five people have heard about it - and that's quite a lot of people for something that hadn't started and hadn't been marketed yet).

At heart, the Green Deal is very simple. It’s a way of borrowing money to improve the energy efficiency of your home and paying it back out of the savings in energy bills that result (the commercial version will follow in due course). Unlike a personal loan, it's attached to the property, and will pass on to the new tenant or owner if you move before it’s been paid off.

The reality has become a bit less simple as layers of complexity have been added to adminster the loans and protect consumers. However, it's still a way to remove the barrier of up front cost, which often prevents people from improving their home. And it will be available for the privately rented sector too, where needs are often greater than other sectors.

At the end of the day, it aims to deliver a warmer, cosier home at no up front cost - and no increase in ongoing expenditure. This is an attractive goal, especially for people who don't have easy access to alternative means of borrowing.

Let's give it a chance. While initiated by government, it's run by the private sector. They want to make it work, and having spent Friday ringing round the Green Deal Providers (the organistations through which the loans are accessed) I found that there are  a variety of ways in which GDPs are planning to work - both with consumers and with installers and assessors. This is just the start. The likelihood is that as consumer demand is better understood, the models of delivery will adapt and improve. We can only wait and see.

My guess is that the Green Deal will start slowly with boiler replacements and insulation for hard to treat and solid wall properties available through the Energy Company Obligation (ECO) where additional money is available to help out with the cost of this insulation.

Is it perfect? No. Is it ready for mass roll out immediately? No. Is it worth giving it a chance to see if it can help deliver the government's goal of making our housing stock less expensive to heat to a comfortable warmth. I'd say Yes, definitely. 

Rates of interest for the Green Deal

On Friday, The Green Deal Finance Company (TGDFC)  announced an initial interest rate of 6.96% per year. There will be a start up charge of £63, plus an annual operating charge of £20 payable by the Green Deal Provider (who may well pass it on to customers).

Green Deal Providers will be able to determine their own all-in package which they will offer to consumers. The indicative interest rate for all-in Green Deal Plans (loans) of £5,000 will be between 7.67% (over 25 years) and 7.6% for a 10 year plan. The rate will be higher for smaller loans – for example 9.3% all in for a £1,500 loan over 25 years.

According to TGDFC “rates will be comparable to the best high street rates for long-term unsecured loans. But whilst these are accessible to barely half the population, TGDFC will lend to over 80%.” Whether or not you think this is a good deal may well depend on your circumstances, and how easily you can access alternative forms of finance.

Green Deal Cashback

To help encourage take up, the Department of Energy and Climate Change is offering Cashback to the early adopters of the green deal. This is available whether or not you take up the green deal finance plan. You must get an assessment to qualify.

Getting started with the Green Deal

Step one on the way to getting a Green Deal is to get your home assessed. This is likely to cost you around £99 and most of the Green Deal Providers will refund that if you go ahead with a Green Deal Plan through them.

You can approach that in a number of ways: ou can contact a provider, you can approach a local, independent Green Deal Advisor direct, or if it’s something you’d like to use your usual plumber, builder or installer for you can contact them and ask if they are Green Deal accredited, and if they work with a local Advisor. Green Deal Advisors all have to work through a Green Deal Assessor Organisation. There are currently 48 accredited. Help is also available by calling the Energy Saving Advice Line on 0300 123 1234.

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Comments

8 comments - read them below or add one

Nigel9000

Nigel9000Comment left on: 4 February 2013 at 4:36 pm

Dear All

ive been working out some figures on renewable s on the green deal:

Let’s assume a householder needs all these energy saving products and services. So not including any tariff incentives etc and assuming existing property was heated by oil.

Example 1.                               Cost                Savings

Solid Wall Insulation 3 bed semi           £12500            £475 From EST. per year

Loft Insulation 170mm top up                £350                £25 From EST. per year

Solar PV Panels 16KW                       £12000            £88 Money saved on bill EST

£77 Money on grid export EST

Total Cost:                                         £24850            £665 A YEAR

If interest rate is 7.67% over 25 years the householder will have to pay back

That is
Monthly:                                             £183
Total Interest Paid                              £29821
Total pay back                                     £54671

So the householder would gain £665 a year (£55.42 month) at present bill rate per year but have to pay £183 per month at interest rate 7.67%

This would not fit under golden rule and could not be financed under green deal. Unless the householder was allowed to contribute money towards the cost or the interest rate was dropped or cost of equipment was lower.

Example 2:

Same size house gas and without Solid Wall Insulation but has cavity walls filled.

Cost                Savings

Loft Insulation 170mm top up                £350                £25 From EST. per year

Solar PV Panels 16KW                       £12000            £88 Money saved on bill EST

£77 Money on grid export EST

Total Cost:                                         £12350            £190 A YEAR

If interest rate is 7.67% over 25 years the householder will have to pay back

That is:
Monthly:                                             £91
Total Interest Paid                              £14821
Total pay back                                     £27171

So the householder would gain £190 a year (£15.83 month) at present bill rate per year but have to pay £91 per month at interest rate 7.67%

This would not fit under golden rule and could not be financed under green deal. Unless the householder was allowed to contribute money towards the cost or the interest rate was dropped or cost of equipment was lower.

Key Facts from Bank of England

Current Bank Rate: 0.5%
Next due: 7 Feb 2013

Quantitative Easing Asset Purchase Programme
£375 bn
Next due: 7 Feb 2013

Current Inflation: 2.7%
Next due: 12 Feb 2013

Inflation Target: 2.0%

The interest rate from building societies for your savings of £12 000 is 2% to 2.5%. So you could assume that the lending rate for the green deal loan could be brought down to a lower figure if it was truly non profit making.

Would be glad to see someone’s realist equations that do work.
Thank you
Nigel

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jeremy H

jeremy HComment left on: 30 January 2013 at 11:45 pm

Kathy,

I admire your stoic attitude and all that, but lets face it, this is a dog!  I read this comment elsewhere and I for one totally agree with the sentiments!  As a society we need to abolish fuel (and all)  poverty.  This is a scheme to expand it!

Jezza  

Quote off the net!

This is a terrible deal for consumers and anyone considering it should think very, very carefully before going ahead.

The Green Deal does sound good, has a budget of millions to sell it to the public, as well as major blue chip companies standing behind it - so wheres the catch? Well, out of this dogs dinner, I will pick just 3, not so tasty morsels from many, that should ring warning bells to any sane person or dog - before they get financial mad cows from the dog/horsemeat in the bowl.

1 Usuary rates of interest!


The deal is meant to help the neediest in society. IE those, least able to look after themselves, financially or otherwise. Result - they pay the highest rate of interest to the *ankers, against a secured loan against their property. Average UK house prices are about £250,000 so for a loan of say £10,000, or less than 5% of the equity, you still pay a whopping 7-8+ percent when all the charges are included and you factor in the "early repayment premium" (scam in other words). To add insult to injury, the banks will also credit check the householder - although the loan is made to the house and not a person! Once the householder has upgraded the building, unless he is getting well in excess of 10% reduction in his annual bills - his net outgoings remain the same! In other words, unless he makes SUBSTANTIALLY more than that taken by the *ankers, for the PERIOD of the loan he is out of pocket! Not much alleviation of poverty going on here is there? More redistribution of wealth methinks. Note, is'nt it ironic, that this Government, whilst, rightly in my opinion, is paying down the national debt left by the muppets of the Labour party, is now advocating poorer households take on more debt! Square that circle if you please - letters on a postcard etc etc!

2 Loaning money to a "thing" and not a person.


This one is fairly self explanatory. Without boring you, as we are all readers of this august e-publication, and of sound mind and err judgement - if i upgrade my house in whatever way i choose, duckponds, conservatories, garages etc. When I come to sell my house, all upgrades are factored into the asking price. Who on earth will buy a house on a massive mortgage AND have an outstanding loan to pay off on the whim of the previous owners judgement that it is more energy efficient. Against what may I ask? There is no accurate UK index of energy efficiency of buildings to make a valued judgement. So, with the efficiencies paying off a loan to the multimillionaire *ankers, there's no tangible realtime benefit to Mr Poor. Note Efficiency upgrades are relative, and as yet, cannot be compared and contrasted in a meaningful manner as there is insufficient UK data. Would you honestly buy a house and take on the previous owners loan for the new conservatory? No, nor me!

3 Who really stands to benefit?


This one I will leave to the forum. No upfront costs, "golden rules", possible savings in the LONG term, lots of generally wishy washy claims without being substantiated, all looks very unappetising. The Green Deal looks and sounds like what it is - a get rich quick scam for *ankers and PLCs, training companies and providers; in fact, all those selling it right now! With energy suppliers such as BG involved (strange, thought they made profit from selling more, not less of their product) the obvious conflicts of interest are clear. Lets face it, would you go large and buy a low fat burger from McDonalds hoping to get slim? Funny that, nor would I!

This dogs' not eating this dinner.

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Rick Hankin

Rick HankinComment left on: 30 January 2013 at 10:32 pm

Is it fair to assume then that the average green deal applicant will be a home owner with improvements to make who is totally unaware of what local grants for insulation are available, has a credit rating so poor they cannot get a payday loan from WONGA and regularly deaults on the electric bill monthy direct debits.

Result: Anyone who can get a line of credit is better off without the green deal.

Within a year it will be filed alongside the HIPS package and the green deal assessors will be signing on at the job centre again.

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RobertPalgrave

RobertPalgraveComment left on: 29 January 2013 at 7:41 pm

I'm all for giving it a chance but I am not expecting miracles. Looks expensive.

There is a mass of very useful 'official' information about the GD here - http://www.planlocal.org.uk/pages/energy-efficiency-and-the-green-deal

 

An interesting but slightly worrying snippet from this doc

www.planlocal.org.uk/planlocal-energy-efficiency-and-community-green-deal/download_file/189

is that both Good Energy and Ecotricity have apparently said they will not be in the scheme. Which I think means if you buy your electricty from them, you can't get a GD without switching. That's because they  won't administer the repayments(?)

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Tim Hyde

Tim HydeComment left on: 29 January 2013 at 6:18 pm

I was very interested in this scheme on behalf of my son who next week is buying an Edwardian semi-detached house with an old boiler and h/w tank, a solid east facing external wall and draughty floorboards which add up to an energy efficiency rating of 44 on his EPC. I winged a few enquiries to a list of Green Deal providers on te DECC website and received not one reply.

Once i saw the proposed interest rate of around 7% i lost interest. There is no credit risk on these loans as the payments will be recouped by the electricity supplier to the house. Early repayment seems to incur a charge. Whoever advised DEC on these financing proposals must have been engaged in the PFI rip-off and thinks they can fleece jo public as easily as the government.

Just as an example a credit worthy borrower could get a 5 year loan on Zopa for less than 6% and repay it without penalty at any time and that rate assumes an average bad debt rate of 1% over the life of the loan, which is unlikely to happen with Green Deal Loans.

It would be nice to be positive about this scheme, but the reality is there are inadequate systems in place, too few providers signed up and a rip-off loan rate to consumers.

I am not a pessimist but it is very difficult to be optimistic about this Deal.

Tim Hyde

 

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Cara

CaraComment left on: 29 January 2013 at 3:27 pm

Cathy you're entirely right to say give the Green Deal a chance.  It's only by trying it out that we'll learn how to improve it - it's a step in the right direction.

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banjax

banjaxComment left on: 28 January 2013 at 3:29 pm

This is a typical Tory business. Interest rates for the poor and which favour profiteering financial institutions? This smacks of yet more stake money for the Tory bankers and their mates.  

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rupertsmith

rupertsmithComment left on: 28 January 2013 at 1:50 pm

Interest rates at 7-10% !! What planet are they on? Obviously a nice warm one without any worrys about being able to afford to heat their house......must be a fat pile of profit for the "not for profit" sorry "not for DIVEDEND"  GDF company  to be able pay their CEO. Scheme doomed to failure , corruption and complaints from the public when they realise they have been sold the emperors new clothes in a few years time.

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