Market Thoughts:

Mark Robinson, chief executive of Market Harborough Building Society
Mark Robinson, chief executive of Market Harborough Building Society

If you have looked at an estate agent’s property details lately you will see houses are now rated on scale of A-G for energy performance.

So far this has received little attention but with soaring energy costs I suspect a value gap is starting to open between modern energy-efficient homes and draughty Victorian houses which are more expensive to heat.

A new Government initiative has been launched aimed at getting home-owners, business owners and tenants to improve the energy efficiency of their premises.

The Green Deal offers government-sanctioned loans for qualifying improvements with repayments made over time through energy bills. These fuel bills, it is assumed, will be lower than they otherwise would be because of the cost savings resulting from the improvements.

In outline, the process for deal is as follows: initially the consumer requests an assessment which is undertaken by an accredited adviser. A provider will then recommend a package of measures (e.g. new boiler or cavity wall insulation) complete with costing. The consumer must obtain any necessary consent for work to be done (for example, from a landlord) before signing up to the plan. An installer then makes the improvements and the provider will notify the energy company and update a register. Finally, the energy company updates its records and adds the repayment charge to the energy bill. The energy company passes on the payments for the work to the provider.

Central to the deal is the so-called “golden rule” – the predicted savings from the improvements must equal or exceed the cost of installation. There is no guarantee that savings will exceed costs.

Given the outlook on energy costs, repayments would however be expected to fall as a percentage of fuel bills over time.

Unusually, the loans are attached to the property, not the borrower. This means if the property is sold the remaining loan obligations (and energy savings) pass to the new owner.

As a result, saleability and property value could be affected. It’s worth noting that the repayment contract is through the energy supplier and so freedom to change supplier may be affected. In total £125m is on offer at interest rates equivalent to seven or eight per cent.

So, the scheme is well worth a look but, for those with a mortgage the same finance might be available more cheaply as a “further advance”.