The government’s green deal is a new scheme that encourages consumers to make our homes more energy efficient. Home and business owners will be able to borrow money, at a low rate, which will then be paid back through utility bills. Money will be available for a range of home improvements including insulation, double glazing, heating or renewable energy.
The green deal loans do not operate as a usual loan would, with the borrower being liable for the debt. Instead the debt will be tied to the property, meaning that when the property is sold, the new purchaser will be liable for the debt.
It has been well documented that the property market has been either stagnant or declining over the past few years. The green deal loan could become a deal breaker for many potential purchasers or a bargaining tool to drive the purchase price down. At a time when many people have concerns over the value of their home; this could be considered a major stumbling block to the success of the scheme.
The foundation of the green deal is that it will save money in the long run; through any improvements made leading to energy savings. All though we are all conscious of saving money, purchasing a house where the green deal is in place is effectively forcing the new homeowner to participate. Many of us would not purchase a car if we had to repay the finance on it from the previous owner so why would we do it with a new home?
Another condition of the scheme is that any new tenants to properties may need to be assessed by the original green deal assessor. If the new tenants or owners are considered to be higher energy users, the monthly repayments may increase.
The simplest option would be to repay the loan upon selling your home. Although we are yet unaware of what the early repayment charges will be, it is thought that it could be the total cost of the interest. Sellers will be paying for a benefit that they will not receive.
Currently many homeowners choose to add the cost of home improvements, such as replacement windows and doors, to their mortgage. The typical interest rate of many mortgages is around 4.5% compared to the green deal rate of 7%. With the restrictions of the green deal, many people will continue to add the extra money to their mortgage, viewing it as money that will get back eventually anyway.
At present it seems the green deal has been met with a lukewarm response. If the scheme does become successful it could prove to be a major boost to the economy and a welcome reduction in our energy bills.
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