costs

By James Mitchell, Lead Writer, Renewable Energy · Energy efficiency analyst — Last reviewed

Heat Pump Finance Options UK: Pay Monthly for Your Installat

First published
Modern UK home heating illustration

TL;DR

  • The UK government’s Boiler Upgrade Scheme (BUS) offers £7,500 off your heat pump installation until 2028.
  • Pay-monthly plans from installers like Octopus (6.9% APR) and British Gas (0% for 2 years) spread costs over 3-15 years.
  • Green loans from banks (e.g., Barclays, NatWest) and credit unions offer lower rates than standard personal loans.
  • Combining grants with finance can reduce upfront costs to £0 for eligible households.
  • Use our comparative table to find the best finance option for your budget and home.

In 2024, UK households face a stark choice: stick with rising gas prices or switch to a heat pump. According to OFGEM, the average annual gas bill for a 3-bedroom home is now £1,200, while heat pumps can cut heating costs by up to 50% for well-insulated properties. But with installation costs ranging from £8,000 to £18,000, how can you afford the upfront expense?

This guide covers every heat pump finance option in the UK, from government grants to pay-monthly plans and green loans. We’ll show you how to combine grants with finance to reduce or even eliminate upfront costs, compare interest rates and terms from top providers, and explore alternative funding like mortgages and credit unions. By the end, you’ll know exactly how to finance your heat pump without breaking the bank.

Table of Contents

How to Pay for a Heat Pump: Combining Grants and Finance

The first step in financing your heat pump is maximising grants. The UK government’s Boiler Upgrade Scheme (BUS) offers £7,500 off the cost of an air source or ground source heat pump, while Scotland’s Home Energy Scotland Grant and Loan provides up to £7,500 in grants plus £7,500 in interest-free loans. For most households, combining these grants with a pay-monthly plan or loan can reduce upfront costs to £0.

Here’s how the maths works for a typical £12,000 air source heat pump installation in England:

  1. Apply for the BUS grant: £7,500 deducted upfront.
  2. Remaining cost: £4,500.
  3. Choose a finance option:
    • Pay-monthly plan (e.g., Octopus Energy at 6.9% APR over 5 years): £88/month.
    • Green loan (e.g., Barclays at 5.9% APR over 5 years): £86/month.
    • Credit union loan (e.g., London Mutual at 4.9% APR over 5 years): £84/month.

For many, the monthly repayments are lower than their current gas bill, making the switch cost-neutral from day one. Use our savings calculator to estimate your potential savings.

Step 1: Secure Your £7,500 Boiler Upgrade Scheme (BUS) Grant

The Boiler Upgrade Scheme (BUS) is the UK’s flagship grant for heat pumps, offering £7,500 off the cost of an air source or ground source heat pump. The scheme runs until April 2028, but funds are limited, so it’s best to apply early.

Eligibility Criteria

To qualify for the BUS grant, you must:

  • Own a property in England or Wales (Scotland has its own scheme).
  • Be replacing a gas boiler, oil boiler, or electric heating system (not a working heat pump).
  • Install a heat pump certified by the Microgeneration Certification Scheme (MCS). Find an MCS installer here.
  • Have an Energy Performance Certificate (EPC) with no outstanding recommendations for loft or cavity wall insulation.

How to Apply

  1. Get quotes from at least 3 MCS-certified installers.
  2. Choose an installer who will apply for the grant on your behalf.
  3. Installer submits the application to Ofgem. You’ll need to provide:
    • Proof of property ownership.
    • Your EPC number.
    • Details of your current heating system.
  4. Ofgem approves the grant (usually within 10 working days).
  5. Installation is completed, and the installer deducts the £7,500 grant from your bill.

Scotland’s Home Energy Scotland Grant and Loan

If you live in Scotland, you can apply for:

  • A £7,500 grant for an air source heat pump (or £9,000 for a ground source heat pump).
  • An optional £7,500 interest-free loan to cover additional costs.

The application process is similar to the BUS, but you apply through Home Energy Scotland.

UK Heat Pump Finance Options: A Comparative Review [2026]

Once you’ve secured your grant, you’ll need to finance the remaining cost. Below, we compare the top finance options available in the UK, including pay-monthly plans from installers, green loans from banks, and alternative funding.

Pay-Monthly Schemes from Top UK Installers

Most heat pump installers offer pay-monthly plans to spread the cost of your installation. These plans are convenient because they’re bundled with your installation, but interest rates vary widely. Here’s a breakdown of the top providers:

Finance OptionProviderInterest Rate (APR)Term LengthKey Feature
Pay MonthlyOctopus Energy6.9%3-15 yearsNo upfront deposit. Fixed monthly payments.
0% Interest for 2 YearsBritish Gas0% (then 9.9%)2-10 yearsInterest-free for the first 2 years.
Low-Rate FinanceAira5.9%3-10 yearsZero upfront deposit.
Flexible Payment PlanE.ON7.9%3-12 yearsOption to pay a larger deposit for lower monthly payments.
Novuna Personal FinanceVarious Installers4.9%-12.9%1-10 yearsUsed by many independent installers. Rates depend on credit score.

Octopus Energy

Octopus Energy’s pay-monthly plan is one of the most popular options, with no upfront deposit and fixed monthly payments over 3 to 15 years. At 6.9% APR, it’s competitive with many personal loans. For example, a £5,000 loan over 5 years would cost £98/month.

British Gas

British Gas offers 0% interest for the first 2 years, making it an attractive option if you can pay off the loan quickly. After the interest-free period, the rate jumps to 9.9% APR, so it’s best for short-term borrowing. For example, a £5,000 loan over 4 years would cost £104/month for the first 2 years, then £125/month for the remaining 2 years.

Aira

Aira’s finance plan starts at 5.9% APR, one of the lowest rates among installer-led schemes. Like Octopus, it requires no upfront deposit, and you can choose a term of 3 to 10 years. For a £5,000 loan over 5 years, you’d pay £96/month.

UK Heat Pump Guide’s Verdict

If you can afford higher monthly payments, Aira’s 5.9% APR is the best deal. If you need lower payments, Octopus Energy’s 6.9% APR over 10-15 years spreads the cost more thinly. British Gas’s 0% interest offer is ideal if you can repay within 2 years.

Green Loans and Bank Financing

If you prefer to shop around for the best rate, a green loan from a bank or credit union may be cheaper than installer-led finance. Green loans are personal loans designed for energy-efficient home improvements, often with lower interest rates than standard loans.

Here are the top green loan providers in the UK:

ProviderInterest Rate (APR)Term LengthKey Feature
Barclays Green Loan5.9%1-5 yearsNo arrangement fees. Fixed monthly payments.
NatWest Green Loan6.1%1-7 yearsDiscounts for existing customers.
Lloyds Bank Green Loan6.3%1-5 yearsNo early repayment fees.
Santander Green Loan6.5%1-5 yearsQuick online application.
Credit Unions4.9%-12.9%1-5 yearsLocal, community-focused lenders. Rates vary by union.

Barclays Green Loan

Barclays offers a green loan at 5.9% APR for energy-efficient home improvements, including heat pumps. There are no arrangement fees, and you can borrow £1,000 to £35,000 over 1 to 5 years. For a £5,000 loan over 5 years, you’d pay £96/month.

NatWest Green Loan

NatWest’s green loan starts at 6.1% APR and is available to existing customers at a discounted rate. You can borrow £1,000 to £25,000 over 1 to 7 years. For a £5,000 loan over 5 years, you’d pay £97/month.

Credit Unions

Credit unions are local, not-for-profit lenders that often offer lower interest rates than banks. Rates vary by union, but you can typically expect 4.9% to 12.9% APR. For example, London Mutual Credit Union offers loans at 4.9% APR for members. To find a credit union near you, visit the Association of British Credit Unions (ABCUL).

UK Heat Pump Guide’s Verdict

If you have a good credit score, Barclays’ 5.9% APR green loan is the best option. If you’re an existing NatWest customer, their 6.1% APR loan is worth considering. For the lowest rates, credit unions are a great choice if you’re eligible for membership.

Alternative Financing: Mortgages, Credit Unions, and More

If you’re not eligible for a grant or prefer not to take out a loan, there are alternative ways to finance your heat pump. Here, we explore green mortgages, credit unions, and other schemes that could save you money.

Green Mortgages: Borrow Against Your Home’s Value

A green mortgage is a type of mortgage that offers lower interest rates or cashback for energy-efficient home improvements. Some lenders also allow you to borrow additional funds to cover the cost of a heat pump.

Here are the top green mortgage providers in the UK:

ProviderIncentiveKey Feature
Barclays£2,000 cashbackCashback for installing a heat pump or other energy-efficient measures.
NatWestLower interest rateDiscounted rate for homes with an EPC rating of A or B.
Nationwide£500 cashbackCashback for improving your home’s EPC rating.
HalifaxLower arrangement feeReduced fee for green home improvements.
Ecology Building SocietyLower interest rateSpecialises in mortgages for eco-friendly homes.

How Green Mortgages Work

  1. Check your eligibility: Most green mortgages require your home to have an EPC rating of C or above (or you must commit to improving it).
  2. Apply for additional borrowing: If you’re remortgaging or moving, you can borrow extra funds to cover the cost of your heat pump.
  3. Receive cashback or a lower rate: Some lenders offer cashback (e.g., £2,000 from Barclays), while others reduce your interest rate or arrangement fee.

Example: Barclays Green Mortgage

If you’re remortgaging with Barclays and install a heat pump, you could receive £2,000 cashback. For a £12,000 heat pump, this reduces your net cost to £10,000. If you combine this with the £7,500 BUS grant, your out-of-pocket cost drops to just £2,500.

UK Heat Pump Guide’s Verdict

Green mortgages are a great option if you’re already remortgaging or moving home. The cashback or lower rates can significantly reduce the cost of your heat pump. However, if you’re not planning to remortgage, a green loan or pay-monthly plan may be more suitable.

Credit Unions: Local, Low-Interest Loans

Credit unions are community-based lenders that offer low-interest loans to their members. They’re a great alternative to banks if you have a lower credit score or prefer to support local businesses.

How Credit Unions Work

  1. Join a credit union: You’ll need to become a member, which usually involves living or working in a specific area or being part of a particular group (e.g., a trade union).
  2. Apply for a loan: Credit unions offer personal loans for home improvements, including heat pumps.
  3. Repay the loan: Interest rates are typically lower than banks, and repayments are flexible.

Example: London Mutual Credit Union

London Mutual Credit Union offers loans at 4.9% APR for members. For a £5,000 loan over 5 years, you’d pay £93/month. To join, you must live or work in London, Kent, or Surrey.

UK Heat Pump Guide’s Verdict

Credit unions are a great option if you’re eligible for membership. They offer lower interest rates than many banks and are more flexible with repayment terms. However, not everyone will qualify, so check your local credit union’s eligibility criteria.

The Smartest Way to Finance Your Heat Pump: Our Verdict

Financing a heat pump doesn’t have to be complicated. Here’s our step-by-step guide to securing the best deal:

  1. Maximise grants first:

    • Apply for the £7,500 BUS grant (England/Wales) or £7,500 Home Energy Scotland grant (Scotland).
    • If you’re in Scotland, consider the £7,500 interest-free loan to cover additional costs.

  2. Compare finance options:

    • If you want convenience, choose a pay-monthly plan from an installer like Octopus (6.9% APR) or Aira (5.9% APR).
    • If you want the lowest rate, apply for a green loan from Barclays (5.9% APR) or a credit union (4.9% APR).
    • If you’re remortgaging, consider a green mortgage for cashback or lower rates.

  3. Calculate your monthly costs:

    • Use our savings calculator to estimate your monthly repayments and long-term savings.
    • Compare these to your current gas bill to see if the switch is cost-neutral.

  4. Check your home’s suitability:

  5. Find an MCS installer:

Example Scenario: The Best Finance Option for a £12,000 Heat Pump

Let’s say you’re installing a £12,000 air source heat pump in England:

  1. Apply for the BUS grant: £7,500 deducted upfront.
  2. Remaining cost: £4,500.
  3. Choose a finance option:
    • Aira’s 5.9% APR plan over 5 years: £86/month.
    • Barclays’ 5.9% APR green loan over 5 years: £86/month.
    • London Mutual Credit Union’s 4.9% APR loan over 5 years: £84/month.

In this case, the credit union loan is the cheapest option, saving you £2/month compared to Aira or Barclays. However, if you’re not eligible for a credit union, Aira or Barclays are equally good choices.

Illustrative Composite: The Smith Family’s Heat Pump Journey

Illustrative composite based on typical UK installations.

The Smith family live in a 3-bedroom semi-detached house in Manchester. Their 20-year-old gas boiler is inefficient, and their annual heating bill is £1,500. They’ve heard about heat pumps but are worried about the upfront cost.

Step 1: Checking Eligibility

The Smiths use our home suitability check and discover their home is well-insulated and suitable for a heat pump. They also check their EPC rating (C) and confirm they’re eligible for the £7,500 BUS grant.

Step 2: Getting Quotes

They get quotes from 3 MCS-certified installers:

  • Installer A: £12,000 (includes £7,500 BUS grant deduction).
  • Installer B: £11,500 (includes £7,500 BUS grant deduction).
  • Installer C: £13,000 (includes £7,500 BUS grant deduction).

They choose Installer B for the best value.

Step 3: Financing the Remaining £4,000

The Smiths explore their finance options:

  1. Octopus Energy’s pay-monthly plan (6.9% APR over 5 years): £78/month.
  2. Barclays’ green loan (5.9% APR over 5 years): £77/month.
  3. London Mutual Credit Union loan (4.9% APR over 5 years): £75/month.

They opt for the credit union loan to save £3/month.

Step 4: Calculating Savings

Using our savings calculator, the Smiths estimate their annual heating bill will drop to £750 with a heat pump. Their monthly loan repayment is £75, so their net monthly cost is:

  • Old gas bill: £125/month.
  • New heat pump cost: £75 (loan) + £62.50 (electricity) = £137.50/month.

At first glance, this seems £12.50/month more expensive, but the Smiths factor in:

  • Future gas price rises: Gas prices are expected to increase by 5% per year, while electricity prices are more stable.
  • Maintenance savings: Heat pumps require less maintenance than gas boilers, saving £100-£200/year.
  • Carbon savings: Their heat pump will reduce their carbon footprint by 2.5 tonnes/year.

After 5 years, the Smiths will have paid off their loan and will benefit from lower heating bills for the next 15-20 years.

FAQ

1. Can I get a heat pump with no upfront cost?

Yes, it’s possible to install a heat pump with no upfront cost by combining the £7,500 BUS grant with a pay-monthly plan or loan. For example, if your heat pump costs £12,000, the grant reduces this to £4,500, which you can finance over 5-10 years. Some installers, like Aira, offer zero-deposit finance, so you won’t need to pay anything upfront.

2. What’s the cheapest way to finance a heat pump?

The cheapest way to finance a heat pump is to combine the BUS grant with a low-interest loan. Here are the best options:

  • Credit union loan (4.9% APR): Cheapest if you’re eligible.
  • Barclays green loan (5.9% APR): Best for most homeowners.
  • Aira’s pay-monthly plan (5.9% APR): Best if you want convenience. Avoid high-interest personal loans (10%+ APR) or credit cards, as these will significantly increase your costs.

3. Are heat pump finance plans regulated?

Yes, heat pump finance plans are regulated by the Financial Conduct Authority (FCA). This means lenders must clearly disclose interest rates, fees, and repayment terms. Always check that your installer’s finance partner is FCA-authorised before signing up. You can verify this on the FCA register.

4. Can I pay off my heat pump finance early?

Most finance plans allow you to pay off your loan early, but some may charge a fee. For example:

  • Octopus Energy: No early repayment fees.
  • British Gas: Early repayment fee of 1-2 months’ interest.
  • Barclays green loan: No early repayment fees. Always check the terms and conditions before signing up. Paying off your loan early can save you hundreds in interest.

5. What happens if I sell my house before paying off the finance?

If you sell your house before paying off your heat pump finance, you’ll need to settle the outstanding balance. Most lenders will allow you to do this without penalty, but some may charge a fee. If you used a green mortgage to finance your heat pump, the outstanding balance will be paid off from the sale proceeds as part of your mortgage settlement.

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