Mortgage misfortunes: the ‘free’ solar situation

UK homeowners are today urged to think twice before allowing rent-a-roof companies to install solar on their home. Both the Council of Mortgage Lenders (CML) and RICS (Royal Institute of Chartered Surveyors) have issued warnings that people could face problems when selling their home, or worse, be refused a mortgage as a result of the ‘free’ panels.

By now we all know how these schemes work: the installation company fits solar panels to a home for free in return for feed-in tariff payments. By effectively renting the roof space, these companies are able to earn a profitable return on investment while the tenant benefits from free solar electricity.

The debate surrounding ‘free solar’ or rent-a-roof schemes has been going on for a while now, as many argued that it made far more sense to install solar photovoltaics using your own funding, as you can make your money back in between 5-10 years and then enjoy the rest of the 25 years of tariff payments. Yet, for someone who simply could not afford the upfront cost, but who wants to do their bit for the environment while reducing their annual energy bills, this looked like the perfect option.

And, for a long time, it seemed to work. Thousands of UK homeowners were enjoying reduced bills as a result of their free solar energy, while another company worried about the operation and maintenance of the system.

Yet, with all things that seem too good to be true, problems soon started to creep out of the woodwork (or tiles in this case).

Mortgage nightmares

Both the CML and RICS have warned that by participating in free solar schemes, you risk mortgage problems. One case in point was published by the Guardian last month, which reported the trouble John and Rebecca Welton faced as a result of their solar installation, which was completed just before Christmas last year.

At first, everything seemed to be marvellous. The installation company came and completed the work, while promising free electricity from the panels, worth around £150 a year. In return the company would pocket the feed-in tariffs, which are worth around 10 times that figure at 45.4p per kilowatt hour (the new rate that took effect from April 1 due to RPI increases; previously it was 43.4p/kWh).

"Before we agreed we checked with our current mortgage provider, Royal Bank of Scotland, and our mortgage adviser, that it would not cause any issue when we came to remortgage or when we try to sell the house," explained Mrs. Welton.

Back then, both parties agreed that the installation was not a problem, so they went ahead. However, just two months later, the couple decided to remortgage their home.

In February 2012 the Welton’s hired a mortgage broker to shop around and find them the best deal. After Skipton building society came out on top, they paid a booking fee for the loan. However, as soon as the building society got wind of the solar lease, it pulled out. The company has since made its policy clear: it will not look at any remortgage deals where there is a solar lease in place.

Not put off by this, the Weltons decided to try Nationwide. However, they were again turned down – in fact they didn't even get to the point where a submission was made.

The Welton’s are now stuck in a position where they have to go with RBS (which has offered them an alternative mortgage on the basis that it had approved the solar installation) even though they could get a much better deal without their solar installation.

"We signed up to this scheme on the basis that we were doing the green thing, but it has turned out to be a nightmare," explained Mr. Welton.

"The implications for us are that we cannot remortgage our house on a lower interest rate. We would still have a mortgage but one on the standard variable rate which will increase with the Bank of England interest rates.

"We are extremely concerned that we will not be able to sell our house as no buyer will be able to get a mortgage on it. We can't be the only people in this position, can we?"

Unfortunately, this isn’t the only problem to come out of the so-called rent-a-roof schemes.

Free solar scams

The introduction of such a high feed-in tariff in the UK was really the driving force behind free solar, but this meant two things:

  1. Rent-a-roof was going to be an easy sell, and therefore open to abuse
  2. When the tariff rates drop, these companies are likely to close

Evidence of the first point reared its ugly head quite early on in the scheme as a small handful of swindling solar companies caused a stir by taking customer’s money in exchange for nothing. These rogue traders acted like door-to-door salespeople, touting the many benefits of installing a free solar system before taking a ‘deposit’ for the works. Many customers were more than happy to hand their money over, as the scheme seemed simply too good to be true, yet they soon realised that the company was never coming back, and any contact information they had been provided with just lead to dead ends.

Before long the industry got wind of what was going on, and Renewable Energy Assurance Limited (REAL) moved in with guidance to prevent this happening in future. It was also important to get the message out there that these companies were in the minority, before the solar industry begun to get itself a bad name.

The second problem has only really occurred since late last year – when Government decided to make rash alterations to the feed-in tariff rates for microgeneration systems. These changes would reduce the profit free solar companies were making by more than 50 percent, as the rates decreased from the 2011 levels of 43.4p/kWh to 21p/kWh (before the RPI increase). This rate would then be further reduced by 20 percent if the company had installed more than 25 systems under new rules put in place from April 1, 2012.

As a result of this drastic alteration, many free solar companies went under, taking customer’s deposits with them. In fact just this week we reported on the story of Yorkshire Solar Panels Ltd, which has disappeared without a trace, leaving some of its customers more than £1,500 out of pocket.

So what should you do?

Although the above may have left you disheartened if you are unable to afford the upfront cost of solar PV, fear not, as CML, RICS and REAL have issued some helpful advice on how to prevent these things from happening to you.

CML says that if you make sure you follow its minimum requirements, you should reduce the chance of a borrower encountering problems in trying to sell, remortgage carry out repairs or maintain the property.

The broker’s minimum standards provide important protection for lenders and borrowers, given that most agreements to lease roof space last for 25 years. Any changes to the borrower’s circumstances over that period, or the need for maintenance or repairs, should not create a financial burden for either the lender or borrower.

The guidance also warns consumers that individual lenders may have their own specific, additional requirements. In this case, CML advises borrowers to include their lender in the discussions with the panel provider from an early stage. That should enable any security or valuation issues to be addressed before signing a lease agreement.

CML’s advice covers matters ensuring that:

  • Installers obtain all necessary consents, including the lender’s consent, before proceeding;
  • Installation is carried out to an accredited standard;
  • Panels are properly maintained, and that any fees for repairs or maintenance are no more than £60 per year, with any grace periods required for maintenance adequately protecting the home-owner’s interests;
  • The lender can have the panels removed without charge, if the property is taken into possession during the period of the leasehold agreement and the installation of panels is affecting attempts to sell the property, or its re-sale value; and
  • There are no other onerous conditions affecting the value, marketability or sale price of the property.

Following on from this David Dalby, of RICS, explains his standpoint:

“We fully support the use and production of sustainable energy; however, at a time when prospective buyers are finding it tough to secure mortgages ‘free’ solar panels can cause a further barrier to homeownership.

“An inflexible PV panel lease, without a buy-out clause, could result in a failed transaction.

“We are advising our members to inform homebuyers of these issues and strongly urge anyone looking to make an offer on a property with ‘free’ PV panels to seek legal advice and consult their mortgage lender beforehand.”

So, whether you are thinking of getting free solar panels, already have them installed, or are planning to buy a property that includes them, make sure you contact your lender and mortgage adviser to ensure you don’t face problems when applying for your next mortgage.