Home energy efficiency funding options: The Snugg 2023 guide

Improving the energy efficiency of your home can be a great investment in the long run, reducing energy bills and carbon emissions. It could even increase the value of your home.

But figuring out how to pay for home improvements can be a challenge as there are so many options available, each with its own pros and cons.

In this guide, we'll explore each option in more detail, so you can decide which funding method is right for you.

We’ll cover:

• Why is choosing the right funding option important?
• Using personal savings
• Increasing your mortgage
• Releasing equity in your home
• Taking out a personal loan
• Taking out product-specific finance

Why is choosing the right funding option important?

When it comes to making your home more energy efficient, identifying the best way of funding the up-front cost should be a key consideration.

Choosing the right funding option is important because it can have long-term financial implications. Each funding option comes with its own pros and cons - including interest rates, monthly repayments and other potential risks - that can affect the overall cost of the project and your financial stability.

For example, using personal savings could be an effective use of money that might otherwise remain unspent, but it may not be feasible for everyone. And while increasing your mortgage may offer better value in terms of interest rates, it could also increase your monthly repayments and put your home at risk if repayments aren’t maintained.

It’s important to understand the different funding options and their potential impact on your finances in order to make an informed decision that’s right for you. So as well as getting clued up by reading this guide, you may want to seek advice from a financial expert.

Using personal savings

If you’ve got enough savings (and enough left over to cover life’s unexpected emergencies), you might want to consider using them to pay for your improvement in one go.

Although it might feel like a lot of money to spend at once, it could prove to be an effective long-term investment.

For example, if paying £10,000 now saved £1,000 a year in energy costs, you’d see a positive return on your investment within 10 years.

Increasing your mortgage

Banks often charge less interest on a mortgage than other types of loans. This is because the mortgage is secured (guaranteed) by the value of your home.

So increasing your mortgage to cover the cost of an improvement could prove better value than taking out a non-secured type of loan.

You’ll typically need to borrow more than £10,000 to increase your mortgage. The mortgage lender may even offer a discounted interest rate for ‘green’ home improvements.

But bear in mind that your monthly repayments could go up as a result. And your home may be repossessed if you don’t keep up repayments on your mortgage.

To learn more about your options, speak with your lender or a mortgage broker.

Releasing equity in your home

If you’re over the age of 55, you may be able to release some of the equity (the portion of your home that isn’t covered by a mortgage) in your home to a specialist lender. This money can then be used to pay for your home improvement.

Usually, you won’t have to pay that money back until your home is sold after you die. And the money you release doesn’t count as taxable income.

However, interest will be charged on the equity that’s released. This could really add up if you live for a long time, reducing the equity in your home that can be passed on through inheritance.

You’ll want to speak with an independent financial adviser before releasing equity in your home as there are many pros and cons to consider.

Taking out a personal loan

A personal loan is one that isn’t secured against your home or another asset. They’re the most common type of loan but they also typically charge the highest amount of interest.

Taking out a personal loan to fund your home improvement can be done easily and online if your finances are in good health. And you can often choose how long you’ll take to repay the loan (the longer you take, the lower the monthly repayment, but the higher the overall interest).

You can also get a personal loan from specialist lenders that cater to people with bad credit, for example. But specialist lenders often charge higher rates of interest.

With so many personal loans available, you’ll want to spend some time comparing the deals on offer. And wherever you take out a personal loan, you’ll need to make sure you can afford the monthly repayments. 

Taking out product-specific finance

Some installers offer interest-free or relatively low-cost credit on improvements like boilers and double glazing.

But be aware that the interest rate might increase substantially after the initial interest-free period.

While you’re getting quotes for your home improvement, you may want to ask the installer about the payment terms of any financing they offer.