Householders keen to make energy-efficient improvements can sign up to the green deal and benefit from up to hundreds of pounds of cashback, plus the scheme's consumer safeguards, without taking out its loan element.
To nab the cashback without using green deal financing, you will either need the cash to pay for your energy saving improvments up front or you can seek finance elsewhere, which is what we're looking at here.
The rules of the offer state that, provided you get a green deal assessment and agree a quote for the work through an authorised provider, you can claim cashback, such as £100 for loft insulation or up to £320 for double-glazing.
A typical rate for a loan through green deal financing is around 7%, according to the Department of Energy & Climate Change, with repayments spread over around 10 years (although this timeframe can be longer, depending on the improvements being installed). The amount borrowed to pay for works could be anywhere between £2,500 (for a boiler) to £10,000 (for a whole house makeover). But with the cost of borrowing tumbling to record lows as economic conditions improve, there are plenty of attractive options elsewhere.
A price war has broken out among credit card companies in recent months, with providers battling to offer the longest interest-free period. If you are undertaking relatively minor works on your home, such as installing a new boiler for a few thousand pounds, you may want to choose to put this cost on a credit card offering a 0% period on purchases. This will give you a short timeframe – currently up to 18 months – to pay off your spending without incurring additional interest charges.
However, to make this option work for you, make sure you pay off your spending in full before the interest-free period draws to a close. While these kind of offers are attractive for the duration of the deal, you may not be able to roll it over on to another 0% deal elsewhere when the period expires.
At present, the longest 0% period on purchases is on offer from Tesco Bank, at 18 months. If you would simply prefer to pick a credit card with an ongoing low interest rate, then MBNA is offering customers a rate of 6.9% for life on purchases.
If your plans are going to need a bit more cash than a credit card will stretch to, a popular alternative to pay for home improvements is a personal loan.
You can check best-buy tables on sites such as Moneyfacts.co.uk and Moneysupermarket.com to make sure you are getting the best available rate – but make sure you pick a repayment period that you are comfortable with and monthly payments you can afford.
These loans are not secured against an asset, such as your property, so rates can be higher than other forms of borrowing. However, they have been creeping down to record-low levels: Sainsbury's Bank launched its lowest-ever personal loan rate this month, allowing people to borrow between £7,500 and £15,000 at an interest rate of 4.8% for three years, propelling it to the top of the best-buy loan tables. However, this rate is only guaranteed until 23 September.
Another option is to speak to your mortgage lender to see if you can extend your mortgage at a better rate than that offered by the green deal. The Bank of England announced that the average mortgage interest rate fell to 3.43% in the three months to June, down from 3.47% the previous quarter, while the average rate for new mortgages fell from 3.65% to 3.47%.
But beware of taking too much equity out of your home. The most competitive mortgage rates are only available to borrowers with a deposit or equity of around 25%, so you want to avoid leaving yourself subject to higher mortgage rates because you have spent the equity in your property. As with any debt, make sure to avoid borrowing more than you can afford – if you get into difficulties paying a mortgage, your home could be at risk.
Additional support
Depending on where you live, whether you claim benefits, or live in a property that is difficult to insulate, you may be eligible for free or subsided energy-saving home improvements – so check before paying for these yourself.
Under the Energy Company Obligation (ECO) scheme, the major energy companies have to offer free boilers, wall insulation and loft insulation to certain homes. In addition to this help, there are schemes around the UK to help you with other aspects of heating and insulation. For instance, many local authorities have grants available to local residents to help them pay for energy-saving improvements. Check with the Energy Saving Trust to find out more.
