The government has launched a new “Green Deals loans” scheme. Consumers will need to be careful to ensure that they get a good deal, not least because there are some unexpected issues for those who claim tax relief on working from home.
Under the new scheme households will be given access to loans to spend on energy-saving improvements, such as insulation and new boilers, with no upfront cost. A Green Deal loan will be charged at a maximum rate of 6.92%, according to the Department of Energy and Climate Change. The amount that anyone can borrow will be capped at £10,000. The loans will be repaid by using savings to electricity bills over 25 years.
The 3.92% appears not to factor in an additional:
- a £63 set-up charge,
- a £20 a year annual fee.
Possible dangers for consumers are the scheme could attract scammers:
- There is no guarantee that electricity savings will eventually repay loans.
- Borrowing via an existing mortgage or taking additional mortgage may be considerably cheaper: consumers may do better if they shop around for finance.
- Suppliers may inflate their prices, or charge for extras, or extra fees: best to obtain several quotes.
- Consumers may mind that they have better bargaining power outside the scheme as cash buyers.
- Consumers will find it very difficult to reconcile whether they have made any savings from their improvements if electricity prices are changing or rising.
- Pressure from cold callers/doorstep sellers: it is generally unwise to allow strangers into your home.
An interesting side issue is the affect that the scheme may have on tax relief for those who work from home. As most full time homeworkers will appreciate, the cost of electricity can be double as a result of home-working. If you use the new scheme your costs should (theoretically if the scheme works) lead to a decrease in the cost of working from home as your electricity bills should be lower. However, the chances are that you will be financially worse off, because the amount of interest paid in repaying the "green" loan will not attract tax relief unless you can identify a proportion of the interest that relates to the cost saving to your business. The trouble is that the interest expense relates to home insulation or a new boiler - both of which are a capital expense that is deemed private as being a home improvement, and so it may be difficult to argue for tax relief.