Green Deal Finance
Starting autumn 2012 the government will introduce a bold, new initiative aimed at curbing the poor efficiency of the UK’s housing stock. The proposed legislation will allow businesses and homeowners to establish, finance and install energy efficiency measures. The financing structure that will be put in place will be funded by private organisations, with Tesco, Marks and Spencer’s and B&Q, amongst others, having already shown interest.
The financing structure that will be implemented within the Green Deal will be referred to as Green Deal finance. Green Deal finance will revolutionise the way loans are provided to people. This is due to the fact that green deal finance will not work like a conventional loan. Green Deal finance will be linked to the property, not the home or business owner. For example, if a consumer undertook energy efficiency measures to improve their property, and subsequently sold the property, then the new owner is liable for the repayment.
Within the Green Deal finance structure customers will have the option of financing the improvements themselves. Consumers can choose to fund their improvements in full or in part, depending on their situation. The remainder of the loan, approved through Green Deal finance, is then debited from the customer’s energy bills. The Green Deal finance structure clearly states that these repayments must be displayed on the customers’ energy bills.
Using this method of financing within the Green Deal finance structure prevents consumers having to commit to the obligation of repayment once they have left the property and are no longer experiencing the benefits of the energy efficiency improvements.
At the heart of Green Deal finance is the ‘Golden Rule’. The Golden Rule forms part of the criteria that needs to be fulfilled before Green Deal finance is approved. The Golden Rule states that the total cost of improvements should not exceed the potential savings. Also, the length in which repayments will be made should not be greater than the life expectancy of the installed energy efficiency measures. This prevents work being carried out that would not pay for itself through Green Deal finance.
Green Deal finance will be available to not only to property owners but tenants alike. The proposed legislation, of which the Green Deal, forms part of, entails that tenants’ should have the right to obtain access to Green Deal finance. Though all relevant parties such as landlords, free holders, local authorities etc must agree to Green Deal finance, and ultimately the Green Deal as a whole.
There will be a number of safeguards in place that will protect consumers that have opted for Green Deal finance. Although it is not considered a traditional loan, in the sense that the loan is linked to the property, it is highly likely, though still unconfirmed, that it will be considered a fixed term credit arrangement. This will mean that Green Deal finance will fall under the Consumer Credit Act 1974. Providers of the Green Deal finance will have to obtain a consumer credit licence before they can operate and provide any financing. Safety measures such as these will prevent Green Deal finance being abused, such as implementing high levels of interest or unsustainable repayments.