Breaking: Green Deal Finance Company confirms 6.96 per cent ...

The Green Deal Finance Company (GDFC) has today confirmed that initial interest rate for finance packages available under the Green Deal energy efficiency scheme will stand at 6.96 per cent.

The underlying rate means that when operating fees are taken into account indicative interest rates on a financing package of ?5,000 will range from 7.67 per cent to 7.96 per cent depending on the duration of the loan.

The figure is lower than the eight to nine per cent some observers had predicted. GDFC said it would provide ?competitively priced finance [that is] open to all?, but Labour Shadow Climate Minister Luciana Berger attacked the offer as a ?sky high interest rate? that represents a ?bad deal for the public?.

The GDFC, a non-profit company backed by a group of 55 companies orchestrated by PwC, will offer funding to all accredited Green Deal providers at the same initial rate of 6.96 per cent per annum.

However, it will also impose a set up charge of ?63 for each Green Deal Plan and an annual operating charge of ?20, which will be payable by Green Deal providers and can be added to the overall cost of finance for the household or business that has signed up to the scheme.

The company said that due to the fixed costs associated with the administration fees households and businesses would get a better rate of interest if they undertook a wider range of building improvements.

For example, a Green Deal package of ?1,500 that only undertook basic insulation would result in a maximum interest rate of 9.34 per cent, but a wider package of measures worth ?5,000 would result in an annual interest rate of 7.96 per cent over 10 years or 7.67 per cent over 25 years.

?Our all-in cost of finance shows that the more energy efficiency measures a household takes advantage of, the better the long term return in terms of savings, and the lower the cost of overall finance,? said Mark Bayley, chief executive of the GDFC, in a statement.

The GDFC said the rates were comparable to the best high street rates for long-term unsecured loans and the government has consistently argued that Green Deal financing will adhere to the scheme?s golden rule whereby repayments are lower than the savings people receive from their energy bills.

But Berger warned interest rates in excess of seven per cent would badly undermine the appeal of a scheme that is meant to deliver a nationwide revamp of the UK?s building stock.

?The whole point of the Green Deal is that households are meant to save money on their energy bills ? but with rip off interest rates, hidden charges and penalty payments the Green Deal could end up costing people more than they save,? she said. ?With sky high interest rates like these it?s hard to see how the Green Deal will be anything other than a bad deal for the public.?

According to Labour calculations a household taking out a 25 year Green Deal package worth ?10,000 at a 6.96 per cent rate of interest would end up repaying close to ?21,000 over the course of the loan.

Concerns are also being raised about the reach of the scheme with the GDFC confirming that around 20 per cent of households will not be able to qualify for a Green Deal package.

However, Bayley insisted the reach of the scheme far exceeded any existing finance package and many of those qualifying for the scheme would have credit ratings that would demand much higher interest rates were they applying for other unsecured loans.

?We estimate that four out of five energy bill payers in the population will be able to access this finance,? he said. ?We know of no other source of low-cost credit which is this inclusive.

?While we?re committed to financial inclusion, we will only lend responsibly. That means finding other ways to help those already in default on their financial obligations. We will work with leading local authorities and providers to see how tailored local support, combined with the Government?s ?540m Affordable Warmth and Carbon Saving Communities programmes, can reach those who need additional help.?

The scheme officially launches on Monday, backed by a ?2m advertising and marketing campaign and a major cashback offer, which will provide early adopters with cash payments worth hundreds of pounds.

Ministers are hoping the opportunity to undertake property improvements at no upfront cost, secure net savings on energy bills, and in some cases receive in excess of ?1,000 in cash payments will encourage significant take up for the flagship scheme.

Bayley told BusinessGreen he expects the GDFC to hand out between ?200m and ?300m over the first year of the scheme and the organisation is in the last stages of raising finance. The first loans are expected to be paid out in April.

Source: http://treeonline.org.uk/breaking-green-deal-finance-company-confirms-6-96-per-cent-interest-rate/

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