What you actually finance
Heat pump costs are headline-big, but the grant is deducted from your quote upfront: the installer applies to Ofgem, you consent when Ofgem emails you, and the invoice shows the grant as a deduction. What is left is the balance. At the DESNZ median for 2026 Q3 an air source heat pump costs £12,826 including the grant, so the balance is about £5,326 after £7,500, or about £3,826 where the £9,000 band applies. The median ground source balance is about £27,130. Your own balance depends on your quote; see heat pump installation cost for how it is built.
For where the headline figure comes from and what drives it, read what a heat pump costs to install before you work out how to pay for it.
| Spread over | Monthly payment at 0% (floor) | Real cost |
|---|---|---|
| 36 months (3 years) | £148 | Add interest and fees from the lender’s representative APR |
| 60 months (5 years) | £89 | Add interest and fees from the lender’s representative APR |
| 120 months (10 years) | £44 | Add interest and fees from the lender’s representative APR |
The table is arithmetic, not an offer: it shows the smallest monthly figure a balance of that size could produce and nothing about what a lender would charge. Any real credit product will cost more, which is why the comparison section below matters.
The main routes
People fund the balance in five ways. The shared block below summarises them; here is what each means in practice.
- Savings. No interest, and you own the system outright. Check how much deposit is asked for upfront and whether it is protected under the installer’s consumer code (RECC or HIES).
- Mortgage further advance or remortgage. Often the lowest rate available, but the debt is secured on your home and runs for the mortgage term. Ask what the extra borrowing costs over the full term, not just per month.
- Personal or green home improvement loan. Unsecured, usually shorter. Some lenders market reduced rates for energy improvements; none is guaranteed, so compare the representative APR.
- Installer-arranged credit. Convenient, but the lender must be authorised by the Financial Conduct Authority and must show the APR and total repayable.
- Warm Homes Loan Scheme (England and Wales, through participating lenders; check what is currently on offer). Covered next.
The routes at a glance
The grant comes off the price before you pay anything, so the question is only how to fund what is left. These are the routes people use — this site does not arrange credit or recommend a lender.
| Route | How it works | What to check |
|---|---|---|
| Savings | Pay the balance on the installer’s payment schedule. You own the system outright. | How much deposit is asked for up front, and whether it is protected under the installer’s consumer code. |
| Mortgage further advance or green home loan | Some lenders offer borrowing earmarked for energy improvements, sometimes at reduced rates. | The representative APR, the total amount repayable and any fees — compare against simply paying from savings. |
| Installer-arranged credit | Some installers introduce a credit broker so the balance is paid monthly. | The lender must be authorised by the Financial Conduct Authority. Ask for the APR and total repayable in writing before you sign anything. |
| Scotland only | Home Energy Scotland offers an interest-free loan of up to £7,500 alongside its own grant (not the Boiler Upgrade Scheme). | Apply to Home Energy Scotland before work starts. |
A note on VAT (not a finance route): installers apply 0% VAT to a supply-and-install job in a home until 31 March 2027, and 5% after. Check the quote shows no VAT on the installation; equipment bought without installation is standard-rated.
The Warm Homes Loan Scheme
The Warm Homes Loan Scheme is a government support scheme for loans, not a lender itself. DESNZ’s scheme rules (September 2026, read 8 October 2026) set out how it works: the government gives approved, FCA-authorised lenders a non-repayable grant of up to 20% of the loan, for loans of 3 years or longer, and the lender must pass that on by reducing the nominal interest rate. The rules say the reduction cannot take a borrower’s rate below zero.
Two things follow. First, the scheme lowers rates; it does not promise zero-interest loans. Second, products come from participating lenders and each lender designs its own, so availability and terms vary. DESNZ’s rules describe a consumer launch from September 2026; check whether a lender is currently offering a scheme product before you rely on it.
| Technology | Highest installation cost supported (before grant) | Boiler Upgrade Scheme grant |
|---|---|---|
| Air-to-water heat pump | £20,000 | £7,500, or £9,000 off-gas on oil or LPG |
| Ground source heat pump | £35,000 | £7,500, or £9,000 off-gas on oil or LPG |
| Air-to-air heat pump | £10,000 | £2,500, residential only |
| Biomass boiler | £20,000 | £5,000, rural off-gas only |
The scheme requires an MCS-certified product fitted by an MCS-certified installer, which is the same standard as the grant. The rules also describe a heat pump buyer who has a Boiler Upgrade Scheme grant using a loan to cover the installation cost above the grant. For other funding that can sit alongside, see other heat pump funding.
Scotland
Scotland has its own scheme. Home Energy Scotland offers a grant of up to £7,500 and an interest-free loan of up to £7,500 for a heat pump, with an extra £1,500 for remote rural, island and off-gas rural areas. It is a different scheme from the Boiler Upgrade Scheme. The page on heat pump grants by country sets the position out, and the Home Energy Scotland site has the current terms.
What to compare before you sign
- Representative APR and total repayable. A low monthly figure on a long term can cost more overall than a higher one on a short term.
- Fees and early repayment charges. Ask for both in writing.
- Secured or unsecured. Mortgage borrowing is secured on your home.
- Whether the lender is FCA-authorised. Check the register for any lender introduced to you.
- Whether the deposit is protected. Under the consumer codes, this is a question about the installer, not the lender.
- Monthly running cost. A heat pump replaces fuel bills. See running costs compared to net them against the repayment.
Finance is a decision about the balance, so settle the quote first. The quotes checklist helps you compare like with like before you add credit to the picture.
VAT and timing
VAT on installing a heat pump in a home is 0% until 31 March 2027 and 5% from 1 April 2027 (HMRC VAT Notice 708/6). That affects what you borrow, since a job completed after the change is taxed at the higher rate. It is not a reason to rush a decision, only a date to know; VAT on heat pumps explains it. The grant’s own timing is in end date and budget.
Finance objections, answered honestly
“The government loan means zero interest.”
Not as the rules are written. The Warm Homes Loan Scheme gives lenders a grant of up to 20% of the loan, which they must pass on by lowering the nominal interest rate. That is a reduced rate, not a promise of 0%, and each lender sets its own products. Always read the representative APR and total repayable.
“Installer finance must be the easiest and so the best.”
It is the easiest to arrange, which is not the same as the cheapest. Any credit offered to you must show a representative APR and the total repayable. Get that in writing, then compare it with your bank or mortgage lender before you sign.
If the installer’s finance rate is competitive and the terms are clear, convenience is a fair reason to use it.
“I should borrow the full price and pay the grant off with it.”
You should not need to. The grant is deducted from the quote upfront, so you only finance the balance. If anyone asks you to pay the full price first, stop and contact Ofgem. The median air source balance is about £5,326, not £12,826.