Good News on the Green Deal – Early Repayment Fees to be abolished
Launched with a rousing fanfare (in January 2013)– the Green Deal was part of the Governments solution to the rising fuel poverty amongst the population of the UK by providing households with ‘low cost’ finance to pay for energy efficient improvements to their homes including loft and wall insulation, solar panels, replacement windows and so on.
Dogged by overly complicated bureaucracy, punitive interest rates and early repayment fees, the Green Deal scheme is in danger of hitting the buffers as the take up rate has been very low with only 2,439 households taking part in the scheme in the last twelve months. The biggest deterrent for the take up of the Green Deal is the early repayment fees.
The Green Deal debt is secured against the property and stays with the property, meaning that any new buyer will have to take the property subject to the Green Deal – taking on full liability for the debt. In order to have a better chance of selling the property, the seller has to clear the property of this debt by repaying the Green Deal and is hit by a hefty early repayment penalty.
Early Repayment Fees
The regulations governing the Green Deal scheme allow the providers to recoup the interest that they are losing due to the fact that the loan is being repaid early resulting in early repayment fees being levied. These early repayment penalties depend on the length and size of the loan:
For Green Deal loans with a term of 15 years or less
The level of the early repayment penalty depends on whether or not you have less than or more than £8,000.00 remaining on the sum owing under the terms of the Green Deal loan and a year or less of the term of the loan. If less than £8,000.00 is owed no early repayment penalty is charged. If more than £8,000.00 is owed and more than one year of the term is left to run, the early repayment penalty is a maximum of 1% of the amount owing. If there is less than a year remaining on the term of the loan the early repayment penalty is 0.5%.
For Green Deal loans with a term of more than 15 years.
The level of the early repayment penalty depends on what the Green Deal provider wishes to charge. If when selling the property, the buyer does not wish to take on the Green Deal loan the early repayment charge can be hefty.
Generally when calculating the early repayment penalty the Green Deal provider will make a calculation based on difference in the interest rate levied on the loan when the householder first took out the loan and the interest rate at the date on which they wish to redeem the loan. The amount of the early repayment penalty is usually reduced by the difference between the interest rate at the start of the loan and the rate at the redemption date.
The Green Deal Finance Company capped the level of early repayment charge to £6.00 per £1,000.00 for every year that the remained on the term of the Green Deal loan. However, this was advisory only and providers can legitimately use their own discretion as to the size of the early repayment charge. Early repayment charges can differ from one Green Deal provider to another.
Early Repayment Fees Abolished.
Aware of the urgent need to reform the scheme, the Government have announced that the early repayment penalties on the loan are to be dropped for all Green Deal loans taken up after 16th May 2014.
Unfortunately, early repayment penalties will remain with existing Green Deal packages ( those taken out before 16th May 2014).