Solar power is more popular than it's ever been. Many homeowners in the UK are installing solar panels on their homes, making buying homes with solar panels increasingly common. Whilst installing solar panels offers many environmental benefits, they can also reduce your household's energy bills. But how do lenders view solar panels, and can they affect your chance of getting a mortgage? This article will look at what you need to know about solar panels and mortgages and the issues you need to be aware of.
The Topics Covered in this Article Are Listed Below:
- What Are Solar Panels?
- Can You Get a Mortgage on a House with Solar Panels?
- Why Is It Difficult to Get a Mortgage with Solar Panels?
- Which Lenders Provide Mortgages on Solar Panel Properties?
- What Do I Need to Know About Buying a House with Leased Solar Panels?
- Do Solar Panels Devalue Properties?
- Can I Remortgage if I Have Solar Panels on My Home?
- Can I Remortgage to Finance Solar Panels for My Home?
- What Do I Need to Consider When Selling a Home with Solar Panels?
- Can I Buy Out a Solar Panel Lease?
- How Much Will It Cost to Remove Solar Panels?
- Should I Buy a House with Solar Panels?
- What to Ask When Buying a House with Solar Panels?
What Are Solar Panels?
In simple terms, solar panels are 3 dimensional frames usually put on roofs that contain a group of solar cells that absorb energy from the sun and turn it into electricity or heat. There are two types of solar panels. Solar thermal panels and photovoltaic solar (solar PV). There are several reasons why a homeowner may choose to install solar panels, for example:
- Provide cheap or free electricity
- Environmental benefits of renewable energy
- The government's Feed-in-Tariff scheme paid for green energy
Can You Get a Mortgage on a House with Solar Panels?
While solar panels are increasingly common across the UK, they can be expensive to install, which is often the source of the issues with solar panels and mortgages. There are subsidies available, but many people choose to pay for their solar panels using a loan. Meanwhile, other homeowners lease their solar panels to save on installation costs. Mortgage lenders and third-party solar panels are where most issues occur.
Owned Solar Panels VS. Leased Solar Panels
Whether or not you'll have problems securing a mortgage on a property with solar panels will likely come down to whether the solar panels are owned by the previous homeowner or leased. Before completing the property purchase, you must determine whether the solar panels will be part of the sale. If the previous owner has bought the solar panels outright, they may want to take them to their next property. Some solar panel lease agreements also allow this.
If the solar panels are staying where they are and will be part of the property sale/purchase, you’ll likely face one of two possible scenarios:
Owned Solar Panels and Mortgages
The ideal scenario for most buyers would be that the seller paid for the solar panels and left them at the property for the new owners. The hassle of removing and reinstalling solar panels often means sellers decide to leave them. They'll also have to pay for any property damage caused by removing the panels. As a buyer, you’re unlikely to face any issues when applying for a mortgage on a property with solar panels. After all, you'll get a mortgage on a property with free solar panels.
Leased Solar Panels and Mortgages
If the property you’re buying has solar panels that are leased or rented, things can get a little more complicated. Some lenders refuse to lend on properties that have leased solar panels, while others that do lend on them have strict criteria. If the lease terms state that the panels' financial responsibility transfers to the new property owners, lenders will want to work that into their affordability assessments.
However, the previous property owners may continue to be responsible for paying off the outstanding lease on the solar panels. In that case, there will likely be certain legal issues lenders will want to consider before deciding to approve a mortgage.
Why Is It Difficult to Get a Mortgage with Solar Panels?
While homeowners may benefit from the cost savings on the energy they consume thanks to the solar panels, this might also make getting approved for a mortgage more challenging.
Installing solar panels can cost over £6,000, so "Rent a Roof" schemes that offered to install solar panels for free and cover their maintenance and insurance became popular. As part of the agreement, homeowners must keep the panels for around 25 years, while the companies earn income by selling energy to the National Grid through Feed-In Tariffs.
While Feed-In Tariffs and Rent a Roof schemes have ended, past contracts with solar panel companies have many years left to go. If a homeowner sells their home, the solar panels and the ongoing contract are passed on to the new homeowners. This can put off both prospective buyers and mortgage lenders, especially as a crucial part of the house, the roof, is subject to a complex lease agreement, complicating the valuation of the property.
What Do I Need to Know About Buying a House with Leased Solar Panels?
There are several things you should consider before buying a house with leased solar panels installed, for example:
- Some lenders have concerns that a large part of the roof is essentially rented out to a solar energy company and not owned outright by the homeowner
- Many of the solar power companies that originally came to market have now stopped trading, so it can be difficult to determine who owns the panels
- If the energy company has passed the management of the solar panels to an agent, the agent may require a fee when the property is sold
- The solar power company might have the right to lease the roof indefinitely under the 1954 Landlord & Tenants Act and can legally rent the roof area longer than the typical 25 years
- The homeowner may have to get permission to extend the property or sell it under the lease agreement with the power company
It's much more straightforward if the homeowner owns the solar panels outright. If the seller leaves the solar panels at the property when they move, ownership will automatically transfer to the new homeowner. However, they’ll also have to take responsibility for the maintenance of the panels.
Which Lenders Provide Mortgages on Solar Panel Properties?
As the number of homes in the UK with solar panels has soared recently, many high street lenders have updated their terms to accommodate these types of properties. For instance, Nationwide, Halifax and Accord are just some of the lenders that will consider mortgage applications for properties with solar panels. However, each lender has its own lending criteria that’ll consider your specific circumstances.
Do Solar Panels Devalue Properties?
Whether solar panels devalue properties largely depends on how long ago they were installed. If they were fitted more than ten years ago, for example, you’re in a good position to prove your energy savings to potential buyers for that period. However, some research suggests that while solar panels don't add much value to a property price, they’re considered an attractive addition by many potential homebuyers.
Can I Remortgage If I Have Solar Panels on My Home?
It’s possible to remortgage if you have solar panels on your home. However, it does depend on your circumstances and the lender's criteria. If you have purchased the solar panels and own them outright, there are fewer risks, and most lenders will be satisfied. But if you’re renting solar panels, you may find it more difficult, although this will depend on the terms of the lease agreement.
Can I Remortgage to Finance Solar Panels for My Home?
Many lenders will let you remortgage your home to raise funds for solar panels. It's common for people to remortgage for home improvements. However, you must ensure that you factor in the maintenance of the solar panels into your calculations. If you own your home outright, getting a remortgage for the amount you require should be fairly easy, especially as the amount you'll need will be quite small in relation to the value of your home.
What Do I Need to Consider When Selling a Home with Solar Panels?
The prospect of buying a home that's energy efficient can be appealing to many buyers. However, there's a considerable amount of information a potential buyer needs.
When You Lease the Panels
If the solar panels are leased, the buyer's solicitor may request:
- Copy of the standard 25 year lease
- Details of building and planning regulations consent
- Details of any breaches of the terms of the lease agreement
- Details of any payments made on the solar panels and insurance
If the property buyer decides they don't want to take over the lease of the solar panels, terminating the lease will incur a cost. You'll need to determine who will pay the costs in this scenario.
When You Own the Panels
If you own the solar panels on the property you’re selling, you'll need to provide your buyer with all the relevant documentation related to the panels. You'll also need to provide them with evidence of the benefits of panels. For example:
- Up-to-date service record that shows the solar panel system is in good working order
- Feed-in Tariff statements
- Electricity bills from before and after the solar panel installation
Can I Buy Out a Solar Panel Lease?
Some solar panel leases feature buy-out clauses enabling a new owner to buy their way out of the lease. The buy-out cost is usually equivalent to the price of installation, around £10,000 to £15,000. If you want to buy out your solar panel lease, you'll have to discuss this with the leased panel owner (who might be the property's previous owner) or the installation company. If the property looks to be difficult to mortgage with the solar panels, you might be able to arrange for the buy-out to happen before completion.
The lender will be more likely to lend on this basis. If there is no buy-out clause in the lease, this may become more expensive and complicated. If this is the case, you must speak to your lender and solicitor as early as possible.
If you successfully buy out the lease, you’ll become the owner of the solar panels and responsible for their maintenance costs. Once you've settled the lease, you can keep or remove the panels. It's important to know that lease agreements often come with very high early repayment charges, similar to mortgages. If you’re selling your home, you might consider passing on the lease to the new buyer, assuming they can get a mortgage that allows them to do so.
How Much Will It Cost to Remove Solar Panels?
If you own the solar panels on your property outright and want to remove them, you can expect to pay anything from £500 to £1,500 to remove them. This amount doesn't include any costs you'll have to pay to replace parts of the roof if required.
Should I Buy a House with Solar Panels?
The issues surrounding lease agreements may put off some buyers. However, in most cases, they can be resolved. Most lenders will approve a loan on a property with leased solar panels provided the lease meets certain conditions. For instance:
- The panels can be removed without incurring missed Feed-in Tariff payment penalties
- The installation of the solar panels is insured and approved
- The installing company is accredited by the Microgeneration Certification Scheme (MCS)
The more information you can get from the seller about the solar panels, including copies of the lease, building and planning consent, and details of payments, the easier it’ll make your property purchase.
When purchasing a property with solar panels, it's important to remember that you may not be able to do an extension, loft conversion or other renovations that may disturb the solar panel installation.
What to Ask When Buying a House with Solar Panels
Before you commit to buying a house with solar panels, you should try to get the answers to the following questions:
Are the Solar Panels Fitted Securely and Connected Properly?
If you have to pay someone to ensure the panels are fitted to your roof securely and won't come sliding off, it will eat into the profits you may make from them. Also, if the panels are properly connected, you won't get as much electricity as you should. Ask your surveyor to check that the solar panels are installed correctly.
What Are the Details of the Installation?
Knowing when the solar panels were installed will help you understand how much longer they'll be good for. Also, find out which company installed the panels, so you know who to contact if you have any queries or require maintenance.
How Long Does the Warranty Run For?
A warranty for a solar panel usually lasts for around 25 years. If that timeframe is coming to an end soon, it's good to know.
Do the Panels Come with a Solar Battery?
Solar batteries store solar panels' electricity, helping homeowners save more. They can cost between £2,000 and £6,000, but if the property already has one, it’ll save you the initial outlay cost.
How Much Income Can I Expect to Get from Solar Panels?
The income you can expect from solar panels largely depends on the installation size. For example, smaller installations may generate only a modest income. However, you can use the electricity your solar panels produce, helping you reduce your electricity bills. Although the savings you'll make will depend on the system size, how much electricity you use and whether you're at home during the day.
According to estimates from the Energy Saving Trust, an average household with a 4.2 kilowatt-peak solar panel system could potentially reduce their energy bills by £165 to £405 a year. The Energy Saving Trust's solar panel calculator will give you an idea of how much you can expect to save on your fuel bills by installing solar panels.
If you are considering purchasing a property with solar panels already installed, contact our team of independent mortgage advisors at John Charcol. We have extensive experience helping buyers arrange mortgages on these types of properties. Contact us on 0330 433 2927 or submit an online enquiry.
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