UK Households Offered Low- or No-Interest Loans for Solar Panels and Heat Pumps

Households across the UK can now apply for interest-free or low-interest loans to pay for heat pumps, batteries and solar panels, with no upfront cost. The government-backed Warm Home Loans scheme launched on Tuesday, and ministers say it could cut energy bills by hundreds of pounds a year.

Loans under the scheme range from £7,500 to £35,000. The government believes spreading repayments over many years will let thousands more households fit clean energy technology, after soaring energy costs drove record demand for such upgrades over the past year.

Energy suppliers including British Gas and E.On have teamed up with lenders to offer the loans directly to customers. British Gas is working with Tandem Bank and E.On with Homeserve, and both provide rates that are discounted compared with those on offer from high street lenders.

Homeowners who want to replace a gas boiler with an air-source heat pump could borrow up to £10,000, while those choosing a ground-source heat pump could secure up to £35,000. They can also draw on the existing government scheme that provides grants of up to £9,000 a year for households installing replacements for fossil fuel heating.

According to the government, installing a heat pump, a battery and solar panels together could save a household up to £550 a year on energy bills. A time-of-use tariff could add a further £300 a year in savings.

Miatta Fahnbulleh, the energy secretary, said: "Energy is an everyday essential that must be affordable for everyone. These government-supported loans will help families across the UK upgrade their homes with no upfront costs to make them warmer and cheaper to run."

Chris Norbury, chief executive of E.On UK, pointed to a recent trial in Coventry. It found that fuel-poor customers saved more than £250 a year on average by pairing a home battery with a time-of-use tariff, which charges lower rates for energy used outside peak demand hours. He called the loan scheme "an opportunity to take that further" by "removing barriers to low-carbon technologies".

The terms were set out a day before the chancellor, John Healey, delivers his first budget on Wednesday. The budget is reported to include plans to scale back heat pump grants under the boiler upgrade scheme. The scheme is not expected to be scrapped, but sources say hundreds of millions of pounds will be cut from its £2.7bn five-year budget, because Treasury officials view it as a subsidy used mainly by middle-class households.

The boiler upgrade scheme has typically offered grants of up to £7,500 toward the £13,600 cost of installing a heat pump, leaving households with a significant sum to find. The Guardian understands that grants of up to £9,000 a year are likely to stay available for homes off the gas grid that rely on high-cost heating oil. Those grants could be combined with the new loans to cover the full cost of a heat pump.

Other lenders taking part in the Warm Home Loans scheme include HTG Finance, Propensio, Secure Trust Bank, Selina Finance, South Manchester Credit Union, Sunsave, The Money Co-op and This Bank.