Green Deal Referees required by Mark and Neil

by Neil Patterson

13:01 PM, 30th October 2012
About 7 years ago

Green Deal Referees required by Mark and Neil

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Green Deal Referees required by Mark and Neil

"It's good to be Green"

Mark and I have worked together since 2003 and have very rarely fundamentally disagreed on a subject, but the Green Deal has split us down the middle with myself being very pro and Mark against. I am writing this whilst sat at home having cavity wall and loft insulation added for free!

I am aware that under the Green Deal in January this will no longer be available as a free subsidy, but in the current economic climate I am not surprised. However I will be planning on taking advantage of the interest free loans available and having a new more efficient boiler replacement for my main residence.

From my perspective I can either spend nothing and keep an inefficient boiler that will eventually break down and be irreparable at some point, or I can spend no upfront cash and use the fuel savings of a brand new boiler replaced under the green deal to pay for an interest free loan added to my fuel bill. Thus I have a new boiler that has not cost me a thing and will eventually be paid off after a number of years by its own savings. Sounds like a no-brainer to me and should also generate new jobs and technology into industry, which is all good for the economy.

Mark will however tell you that I could have got the insulation for free under the current subsidies after January, but the system is being changed because the energy companies have been very poor at promoting it. The Government will be using our tax money on advertising the new Green Deal instead of directly paying for energy saving measures, which is a complete waste of money.

I counter with the fact that I could not have got a new boiler with a free subsidy before, so an interest free loan still sounds like a good idea to me and government wastes money all the time.

The main difference between Mark and myself is that as a landlord he is more concerned with his rented properties. He sees the Green deal as a barrier to being able to let a property with a loan adding to the cost of  fuel bills putting off a prospective tenant that could rent next-door where the bills will be cheaper.

I counter with Mark’s own logic for BTL “always use someone else’s money to invest where at all possible to maximise your return on capital and reduce risk by staying liquid”.

If you need a new boiler in a rented property why pay £2,500 plus from your own liquidity when you can have an interest free loan? You can always reduce the rent by the same amount as the loan to attract tenants and have a property that will be more attractive to rent.

I personally don’t see the down sides as an end user, but I really want to know what everyone else thinks for a more informed less one sided opinion. Please add your thoughts in the comments section below the enquiry form.

In the meantime, if any of your properties don’t have cavity wall insulation or modern loft installation then you should do as I have done and take advantage of the FREE grant money that’s available now. For further details simply complete the form below.
[si-contact-form form=’6′]



Comments

Mark Alexander

13:59 PM, 30th October 2012
About 7 years ago

The bit I can't get my head around Neil is how to explain to a tenant that their gas and electricity will show a price for usage plus an additional amount for repayment of a loan which they never took out. How can I justify extra payments on the basis that I took out a loan to improve my property? You are good a figures so you may may well be able to present a valid argument that your property is more energy efficient in the first place and therefore the bills will be no higher. Will tenants buy into that though or will they simply pass it off as sales patter? I suspect that where two similar properties are available to let for similar prices that properties without green deal loans will let first.

Tenants might not ask about bills that often now but I'd like to bet they will do so a lot more often as soon as the Green Deal kicks in.

I can also envisage property values being affected by Green Deal Loans. If there were two identical properties and one had a green deal loan outstanding and the other didn't would they be worth the same amount of money?

I may very well accept your argument for borrowing cheap Green Deal money to improve your own home if you plan to stay there for the foreseeable future, however, on rental properties I am going to need a lot more convincing.

Neil Patterson

14:51 PM, 30th October 2012
About 7 years ago

Ok Mark lets take it one stage at a time.

1) I know you will agree with me that if you need to spend £2500 on a business it is better
to use someone else's money at 0% and keep £2500 in your bank account earning interest at say 2.5% (there already saved you £62.50 year one, or more if you would have put it on a card or overdraft instead).

2) Your property will now be more comfortable, reliable (saving money) and attractive. Notice I did not say cheaper to run as the idea with the Green Deal is to be cash flow neutral. Plus the new boiler is paying itself off and will become an asset.

3) You can eradicate the cost of the Green Deal loan from your tenants if you wish by reducing their rent by the same amount. Thus making your property even more attractive reducing the cost of voids. If you have 2 identical houses both with the latest energy saving equipment on the same tenants viewing list yes you will have to reduce the rent, but so what you have still saved money and the asset is paying itself off.

4) In reality your property will now be more efficient and attractive than the one next
door and you will probably not have to reduce the rent by the same amount as the loan making the deal even better. Therefore even worst case scenario it is still worth doing.

Conclusion:
Mathematically you can't lose.

Mark Alexander

16:17 PM, 30th October 2012
About 7 years ago

So are you accepting that rental value attainable may reduce as a result of taking a Green Deal loan?

Also, it surely stands to reason that if rental values can be affected by a Green Deal loan that capital values could also be affected by the outstanding balance of a Green Deal Loan?

If both the rental value and capital values of property could reduce as a result of taking a Green Deal loan, so too will the ability to borrow against that property. An extra £50 a month in rental value could reduce a maximum available loan by up to £10,000.

CONCLUSION
Mathematically I could lose.

16:38 PM, 30th October 2012
About 7 years ago

Where do you get the idea that the Green Deal loans will be interest free?
The general consensus seems to be round the 7.5% figure.
At that sort of level I'd expect the professional landlord to be able to source cheaper funds elsewhere and thus avoid all the bureaucracy associated with the Green Deal

8:17 AM, 31st October 2012
About 7 years ago

Hi
I am generally in favour of the Green Deal as a landlord as I can improve the capital value of my property and the tenants will pay for it - I'm sure it won't be that simple though !!
One point I would make is that there is a Golden Rule that must apply so "the house next door" that hasn't had Green Deal improvement will have higher energy bills as the savings + the new reduced energy costs must be less than the old energy costs. This means, in theory, that the tenant pays the interest costs but still has lower bills overall.
As a landlord it does seem to be a no brainer to me.
Regards
David

8:22 AM, 31st October 2012
About 7 years ago

I am applying to be a green deal provider ( I run a solar installation company call Explore Solar) and I am also a property investor. I would like to write or advice lands on the green deal. It is no longer going to be an interest free loan. I am happy to discuss my ideas with you.

8:44 AM, 31st October 2012
About 7 years ago

I will shortly be qualified as a GD advisor and will have to tell my clients thst the GD is NOT an interest-free loan. It will be around 7-8%. The monthly repayments are calculated using a formula where:

R is annual payment

c is the cost of the measure

r is the annual interest rate

n is the lifetime of the measure in years.

This is:

R = { (c x r) } DIVIDED BY { 1 - [1 divided by [(1 + r)
to the power of n]}

8:50 AM, 31st October 2012
About 7 years ago

Mark is right, you will never get your money back on the new boiler, it will take to long and you will need a new boiler by this time.

22:06 PM, 3rd November 2012
About 7 years ago

Hi
I am looking at using the green deal to insulate the outside of an end of terrace Victorian house that I rent out but I am afraid my maths is not up to speed. I have tried your equation but came up with a load of garbage. c is £5000, I used r as 7.5% and n as 20 years. I came up with an answer of £5375 to the power of 20. Some help would be much appreciated.
Regards

3:18 AM, 6th November 2012
About 7 years ago

The Green Deal must always meet the Golden Rule of annual repayments being lower than the annual savings (at least for the first year!) So for solid wall insulation on your victorian property you would first access ECO funding which is which is the pot of money set adide by the big six to help reach the countries CO2 reduction targets. This funding will bring the cost of the improvement down in order to meet said goldenrule. Simple as that, hopefully. Hopefully that does simplify matters but feel free to get in touch


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