Buying a House with Finance Attached to the Property
The Green Deal Scheme is a UK government initiative that gives homeowners access to the finance required to make energy efficiency improvements within the home. There are a whole range of improvements that are eligible and would include things like loft and wall insulation, energy efficient windows and doors, alternative energy generation systems and energy efficient boilers.
Finance For Energy Efficiency Improvements
Of course the type of improvements undertaken will dictate the level of the finance needed to accomplish them. Works are normally carried out according to a plan drawn up by an assessor accredited by the scheme. These will identify areas where the maximum energy efficiency savings can be made.
Who is Responsible for Repayment?
One aspect of the scheme that is important when considering buying or selling a property is the fact that the finance is repaid through energy bills and is therefore attached to the property rather than the homeowner themselves. So if you are buying a home, and the homeowner informs you that the home has a loan attached, should you be concerned? The answer really depends on the diligence of the original homeowner when they entered the scheme and acquired the loan.
Given that when you buy a home with an attached Green Deal loan, you become responsible for repayments, before you make a buying decision you should seriously consider the following points to determine whether it is an economically viable proposition:
1) Energy Savings
A Green Deal loan is supposed to only be made if increased energy efficiency will save more money than the total cost of the loan itself. However, the original assessment for the loan will have been made based upon the occupants at that time. If they were a large family, and you have a smaller one, then your energy savings may not be enough to counterbalance the monthly cost of the loan. Before buying a house with an attached finance under the scheme, you may want to have your own energy assessment carried out with a view to confirming that the cost savings still outweigh the repayments when adjusted to your particualar circumstances.
2) The Interest Rate –
The various Green Deal Providers offer loans at different interest rates. If the homeowner did not shop around before signing up for the loan, they may have a loan with a high interest rate. You should to find out what the interest rate for the attached Green Deal loan and make sure you are willing to take on that responsibility.
3) Installation Cost
The homeowner had the ability to choose their Green Deal Installer when they signed up for the Green Deal. Did they choose an installer that charged a reasonable amount for the energy improvements that were installed? If not, then you may be assuming responsibility to repay finance issued on an overpriced product.
4) Higher Home Price
Some homeowners may increase the value of their home based upon the improvements made under the sceme. In effect, by taking on the loan as well as paying a higher purchase price because of works carried out under the scheme, you are actually paying twice when you take on resposibility for the debt. You should bear in mind that there is some potential for using these calculations as a negotiating tool if you are seeking a reduction on the asking price of the house you are interested in purchasing.
If you are uncomfortable buying a house with an attached Green Deal loan then you always have the choice to move on and look elsewhere for your perfect home. Another possible option might be to agree to purchase providing that the finance is repaid before going ahead. This could present problems for the seller because some providers will have included a clause in their contract for a high penalty for early payoff. However the option is there to be explored and it doesn’t hurt to ask.
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