How Can I Finance a Heat Pump?

You can finance a heat pump by claiming every grant you qualify for first, then covering the rest from savings, an interest-free Home Energy Scotland loan, installer finance, a personal loan or extra mortgage borrowing. In England and Wales the Boiler Upgrade Scheme takes £7,500 off an air source or ground source heat pump, or £9,000 if you are replacing oil or LPG heating until 31 March 2027. In Scotland, Home Energy Scotland offers a grant of up to £7,500 plus an optional interest-free loan.

This guide explains how each option works, what it costs in principle and where the catches are. It is general information, not financial advice. HomeKOG is not a financial adviser. Before borrowing, compare products, read the credit agreement and speak to a regulated adviser if you are unsure.

What Grants Should I Apply for Before Borrowing?

You should apply for the Boiler Upgrade Scheme in England or Wales, or the Home Energy Scotland Grant and Loan in Scotland, before you borrow a penny. Grants reduce the amount you finance, and a smaller loan costs less interest.

For the Boiler Upgrade Scheme, your MCS certified installer applies to Ofgem and the grant comes off your quote and invoice. In Scotland you apply yourself through Home Energy Scotland and the grant is paid to you after installation. Northern Ireland has no Boiler Upgrade Scheme, though lower-income households can ask about NISEP schemes.

How Does 0% VAT Reduce What I Need to Finance?

Heat pumps supplied and installed in homes are zero-rated for VAT until 31 March 2027, so you pay no VAT on the installation. The rate reverts to 5% from 1 April 2027.

The relief applies when the installer supplies and fits the heat pump in residential accommodation. It covers air source, ground source and water source heat pumps, including the groundworks for ground source systems. You do not claim it. It should already show as 0% on your quote. If you are planning to finance an installation over the winter, the VAT deadline is worth keeping in mind.

Is Installer Finance a Good Way to Pay for a Heat Pump?

Installer finance can be a good option if the rate is competitive and the lender is authorised by the Financial Conduct Authority (FCA). It is a loan arranged by the installer at the point of sale, usually through a specialist lender, and repaid monthly.

Before signing, confirm the installer and lender appear on the FCA register. Then compare the APR and the total amount payable with personal loans you could get elsewhere. The monthly figure on its own can hide a long, expensive term.

What Does a Representative APR Mean?

A representative APR is the rate the lender expects at least 51% of borrowers from that advert to receive, so up to 49% may be offered a higher rate. Your own rate depends on your credit check. Treat any advertised figure as a guide, and use the personalised quote as the real number.

Does Installer Finance Give Me Extra Protection?

Yes, point-of-sale loans are covered by Section 75 of the Consumer Credit Act where the cash price is over £100 and not more than £30,000. That can make the lender jointly liable if the installer breaches the contract or misrepresents the work. The same protection applies if you pay part of the cost on a credit card.

The table below shows how APR and term change the cost of borrowing. The figures are illustrative only and are not offers from any lender.

Stretching the term lowers the monthly payment but roughly doubles the interest in these examples. Check for early repayment charges if you might clear the loan sooner.

Should I Use a Personal Loan for a Heat Pump?

A personal loan works well if you have a good credit record and can get a lower APR than the installer’s finance offer. It is unsecured, so your home is not used as security.

Taking your own loan lets you shop around the whole market and pay the installer as a cash customer. The trade-off is that a personal loan from your bank is not linked to the installer, so Section 75 protection does not apply unless you pay part of the cost on a credit card. Unsecured loan terms are usually shorter than mortgage terms, which keeps total interest down but pushes monthly payments up.

Can I Add a Heat Pump to My Mortgage?

Yes, many homeowners can fund a heat pump with a further advance from their current lender or by remortgaging. Some lenders offer green additional borrowing at a reduced rate or cashback for energy efficiency improvements such as heat pumps.

Mortgage borrowing usually has a lower interest rate than a personal loan. It is also secured on your home, so falling behind on payments could put your home at risk. Spreading a few thousand pounds over the remaining mortgage term can cost far more interest in total than a short loan at a higher rate.

What Is a Green Mortgage?

A green mortgage is a mortgage or extra borrowing that rewards energy efficient homes or improvements with a small rate cut or cashback. Which? reports that rate discounts are often around 0.1–0.15%. They are not always the cheapest deal overall, so compare them with standard products before choosing one. Speak to your lender or a mortgage broker about affordability checks and any fees.

What Is the Warm Homes Loan Scheme?

The Warm Homes Loan Scheme is a government-backed programme that gives approved lenders grant funding to offer cheaper loans for heat pumps, solar panels and batteries. The government pays lenders up to 20% of the loan amount, which the scheme expects to cut rates by about 5 percentage points.

You do not apply to the government. You borrow from a participating FCA-authorised lender, usually through an MCS certified installer. The scheme rules cap eligible loans at £20,000 for air-to-water heat pumps and £35,000 for ground source heat pumps, before any Boiler Upgrade Scheme grant is deducted. Loans can sit alongside the Boiler Upgrade Scheme, and owner-occupiers and private landlords can both borrow.

The scheme rules expected loans to reach the public in September 2026, and industry reports in late September suggested products would appear from October. The Warm Homes Plan describes the consumer loans for England and Wales, while the scheme rules say it will operate UK-wide alongside devolved schemes. Ask your installer or lender whether a Warm Homes Loan product is available at your address before relying on it.

Can I Get an Interest-Free Loan for a Heat Pump in Scotland?

Yes, Scottish homeowners can borrow up to £7,500 interest-free for a heat pump through the Home Energy Scotland Grant and Loan, on top of the grant. There is an admin fee of 1.5% of the loan value, capped at £150, and a credit check.

You must receive a written funding offer before any work starts, and use an MCS certified installer and product. Private landlords in Scotland can use a separate landlord loan of up to £10,000 for a heat pump, interest-free for landlords with five or fewer properties.

Is ECO4 or the Great British Insulation Scheme Still Available?

ECO4 is still running until 31 December 2026, but the Great British Insulation Scheme closed on 31 March 2026. Both were funded through energy suppliers and aimed at low-income and vulnerable households.

ECO4 covers England, Scotland and Wales, and you access it through obligated energy suppliers and their installers. With a hard end date close, new jobs may be harder to secure. The government has confirmed there will be no successor supplier obligation after ECO4. Support for low-income households is moving to grant funding under the Warm Homes Plan, delivered at first through the Warm Homes: Local Grant and social housing funds in England. If you are on a low income, contact your council or Home Energy Scotland to check what is open now.

What Is Heat as a Service or Heat Pump Leasing?

Heat as a service is a subscription model where a provider installs and maintains the heat pump and you pay a monthly fee instead of buying it outright. Offers of this kind are still at an early stage in the UK, and the Warm Homes Plan mentions subscription-type models as an emerging option.

Before signing a subscription or lease, check who owns the equipment, how long the contract runs and what happens if you sell your home. Ask whether servicing and repairs are included, and what the exit costs are. Also confirm whether the arrangement stops you claiming a grant yourself.

Is Paying Outright Better Than Borrowing?

Paying outright is the cheapest route if you have savings you do not need for emergencies, because you pay no interest. The exception is a 0% loan, such as the Home Energy Scotland loan, which costs no more than cash apart from any admin fee.

Keep an emergency fund in place rather than emptying your savings for the install. Compare the interest your savings earn with the APR you would pay on a loan.

Which Heat Pump Finance Option Suits My Situation?

The right option depends on how much you need after grants, your credit record and how quickly you want to repay. This table summarises the main trade-offs.

For example, a household in England replacing an oil boiler could take the £9,000 grant, then borrow only the balance on a short loan. A Scottish owner might combine the grant and the interest-free loan and pay nothing in interest. We can give you an itemised quote with grants applied, so you know the real figure you need to fund.