In today’s environmentally conscious world we hear a lot about green energy, energy saving products and carbon emissions. Green “issues” have the benefit of making people feel good about themselves which is always a bonus. Generally we all able say “yes we are religious about recycling” and glow with smugness.
There’s also the point that these days, the government has made it almost impossible for each household not to recycle, with the introduction of bi-monthly pickups forcing us to separate our plastic and glass from our normal household rubbish. It would be fair to say that 15 years ago this would have been inconceivable, a little like imagining the social pariah being a smoker would become today. These views are very populist, and as stated before, very trendy (although perhaps not quite as much as they were pre-recession).
The most recent of these green policies was the announcement by the government to force landlords into making their properties more energy efficient by 2018. The aim is to get every rental property up to a B and E status on the governments energy efficiency scale.
This policy sounds good on paper, as energy bills will go down for most tenants; however, it’s almost a forgone conclusion that their rents will rise.
Naturally, this will not affect those who have purchased new build properties, but for those who own a property more than 30 years old, there could be a costly bill to pay somewhere. Some estimates say that the amount could be between £9000 and £12,000, a hefty sum that will almost certainly be passed onto the tenants in rental increases.
As with many government initiatives, there are always unintended consequences and a policy like this could send more people out on to the streets if rents become unaffordable. Worse still, the owner may just decide it’s not worth it and sell up. This legislation inevitably interferes with the market and makes things generally more difficult for everyone and benefits nobody, with one exception: The green industry. It is claimed that it will “help to kick-start a multi-million pound market in energy efficiency products and services in the UK”, but there could be a lot of negative knock-on effects.
The Green Deal Initiative
The Green Deal involves government loans to encourage homeowners and businesses to upgrade their properties into one of the more energy efficient bands as set out by the government’s targets. The most efficient is of course Band A and descends to Band G (the least efficient). The Green Deal was launched in January 2013 and helps homeowners cover the cost of home improvements such as loft and cavity wall insulation, solar panels and wind turbines, heating, double glazing and draft proofing.
To get started, you’ll need to have an assessment of your property completed by a Green Deal approved surveyor at a cost of £120. This will be someone from The Green Deal Oversight and Registration Body who will do a survey and give you advice on how and where you could make savings. The surveyor will then file a report on your home which will be directly sent to the advisory body and they can assess your eligibility. If you are eligible they will draw up a finance plan and set you up with a Green deal provider who can help explain your Green deal plan.
From then on, it’s full steam ahead with the installation of the products and you repay the cost of the loan through your electricity supplier, who, in turn; passes those repayments on to the Green Deal provider. These loans are to be paid back between 10 and 25 years. Sounds simple enough, huh? However, should you move, you cannot take your Green Deal with you. The Green Deal stays with the property and the new owner will take it up.
Some estimates say that the amount could be between £9000 and £12,000, a hefty sum that will almost certainly be passed onto the tenants in rental increases. The loans typically come with an interest rate of between 7.9% and 10.3%, much higher than if you were going to take out an ordinary loan from the bank to cover the costs.
Secondly, most of the products, such as cavity wall insulation (which can cost between £9000 and £26,000); only come with £4000 cash back, so the homeowner is still heavily out of pocket. The positive side to this deal is that average household heating bills are cut by around £460 a year.
When it comes to cavity wall insulation, the surveyor will suggest energy efficient doors for the front and the back of the property – together these cost around £1000. However, the government has set aside £6 million for this type of improvement and so this will be added to the amount of money that you are able to claim back.
If you opted for double glazing and a new boiler, which under the scheme is considered an ‘extra’; it’s worth really working out how much you would actually save in the long run. For example, double glazing for the average three-bedroom home can cost around £5,000, but the saving on your heating bill could be £175 a year. If you combine this with a new boiler that has an energy efficiency rating of ‘A’, the cost to the householder is £2,300 and saves you £490 a year. However, the Green deal only offers a net contribution of £1,600 towards the cost of these upgrades.
As with all schemes like this, there are upsides and downsides. So far only 2% of the households that were assessed for the Green deal have actually taken it up. Those that have, discovered funding problems along the way, where the cashback system has had to be put on hold due to lack of funds. Perhaps we can assume that those initially interested realised early on that the costs outweigh the benefits and so withdrew? Or maybe, as with many government schemes, it was so full of jargon that it’s instantly off-putting. Either way perhaps the slow uptake explains the aforementioned levy on landlords. Could this be a way of achieving targets without having to foot the bill? After all, sooner or later those properties will go back on the market branded with a Government approved Green stamp.