In January 2026 the Warm Homes Plan outlined how the UK government plans to spend £15 billion to make our homes warmer, cleaner and more affordable. A welcome surprise for many in industry was a commitment for £2 billion to be allocated to low- and zero-interest consumer loans for low carbon technologies such as heat pumps, batteries and solar panels.

This new form of government-backed funding is much needed. In 2025 we saw almost 52,000 heat pumps being installed as retrofits, roughly a 6% increase compared to 2024, and 125,000 sold in total, a 27% increase from 2024. Although this growth is promising, it's nowhere near large enough if we hope to meet targets set out in the Warm Homes Plan of 450,000 annual installations by 2030.

Upfront costs are the most commonly reported barrier to heat pump adoption. The £7,500 grant from the Boiler Upgrade Scheme (BUS) makes a significant contribution towards installation costs. It even enables some smaller households which don’t require any supplementary work, like replacing radiators, to install one for under £1,000.

However, despite the BUS funding, many people still find an installation to be unaffordable and are unable to cover the remaining costs with their savings. Finance seems like the most immediate solution to this problem, although in the long term the cost of installation will come down as the sector matures. Current geopolitical events highlight the urgent need to enable households to reduce their reliance on oil and gas at pace, making the delivery of consumer finance and loans more critical than ever.

The idea is that these funds can be used by public-private partnerships, so the loans will be provided to consumers via a range of private lenders rather than directly from the UK government. The total pot of £2 billion is separated into £1.7 billion of financial transactions, which will be made available to private lenders, and £300 million to lower the cost of the loans to consumers. Exactly what form the loans will take is uncertain at this point in time, but initially we might expect to see a range of personal loans, product loans and secured loans. The intent is that consumers will be able to access these funds at an interest rate of between 0-3%, a competitive offer compared to current market rates for unsecured borrowing that can come with an interest rate of around 5% to over 10%.

There is precedent for the large-scale use of finance for purchases of a similar size and type as a heat pump. Car finance has become normalised over time and is now a primary method of purchase for new cars, with over 80% using some form of finance like a personal contract purchase. We also know that a large number of the 1.5-1.8 million boilers bought in the UK make use of financial offerings like product loans.

We are already seeing people relying on finance to cover the remaining cost of a heat pump installation. A survey of BUS users in 2024 showed 7% used mortgages, 5% used personal loans and 5% took gifts or loans from family or friends. The number of people that will need to use finance to cover the additional cost of an installation will grow as demand increases. Research by the Department for Energy Security and Net Zero (DESNZ) indicated that interest rates below 4% are generally seen as low and acceptable by interviewed homeowners. Our own consumer testing in our paying for heat pumps project has also found that low interest and short but flexible terms are highly valued. The existence of these features in the current loan proposals send a promising signal for their potential uptake.

Similar to the loans proposed in the Warm Homes Plan, both France and Germany have employed public-private partnerships to deliver their subsidised consumer loans. In France you can access €15,000 at 0% interest for up to 15 years through eco-PTZ, whilst in Germany the KfW development bank can access subsidised loans up to €120,000 at rates below 2% if your household income is below €90,000/year.

Scotland also offers interest free loans of up to £7,500 for heat pumps, although it's administered by the Energy Saving Trust on behalf of the Scottish Government, rather than in partnership with private finance. Exact figures on the uptake of French and German loans for heat pumps are not readily available, but their heat pump sales dwarf the UK’s in recent years with 547,000 and 229,000 in 2024 respectively.

The intent of low- and zero-interest loans is not solely about the number of heat pumps, solar panels and batteries that we can install in homes. A big part of the value they provide is mobilising private sector finance. The loans should provide enough security that private lenders can develop a variety of green finance products to suit a range of consumer preferences. The hope being that the market will have matured enough to continue thriving once government support is tapered off.

For consumers, government backed loans can also help build confidence in heat pumps as a technology and as an investment. Low interest rates also ensure that potential energy bill savings are not absorbed by higher interest rates on loans, helping to make a heat pump a financial investment, even when using finance. Partnering with private sector finance also provides another conduit by which people can increase their awareness of heat pumps as a replacement for their boiler.

The loans are scheduled to become available in April 2027. The lead in time before then should be used to test scheme options and learn what is effective to ensure the loans can be implemented in a way that works for both industry and consumers alike.

Evidence from similar schemes suggests high potential for strong uptake of the loans - but the UK government also needs to ensure it takes into account learnings from what others have done and focus on what consumers really want. Here are three things the UK government should remember to ensure the loans are successful.

1. Make it easy for consumers

A simple consumer journey that minimises admin and doesn't leave homeowners as an intermediary between installers and lenders will help to reduce drop off and promote a positive user experience.

2. Provide consistent and loud support

The UK government needs to continue providing clear support for both the loans themselves and heat pumps as a technology. People tend to find the government to be the most trusted messenger when it comes to grants and loans for energy performance improvements, so we need to emphasise the fact that these loans are government backed. Likewise, industry and the finance sector need to have confidence that heat pumps are going to remain a government priority if they are going to mobilise fully enough to continue providing competitive offerings in a future where subsidies are tapered down.

3. Focus on genuine consumer value

Finally, financial offerings need to be appealing enough to ensure savings from heat pump running costs, so low- or zero-interest loans with flexible repayment terms will be key to giving the Warm Homes Plan consumer loans that best chance at success.

Learn more about Nesta’s work exploring how innovative finance models could enable heat pump installs for zero or boiler-parity upfront cost here.

Nesta is also part of the government-backed Green Home Finance Strategic Partnership, co-chairing a working group with the Finance and Leasing Association (FLA) that is focused on driving demand and standardising consumer journeys.