For the UK to decarbonise its homes and reduce its reliance on fossil fuels, clean technologies need to make economic sense to customers. Until air-source heat pumps offer a financially attractive alternative to gas boilers, one of the key incentives to switching will be missing.

To be attractive to most households, heat pumps need to be cheaper over their lifetime than a gas boiler – that is, when both the upfront costs and running costs are considered.

There are several factors that shape the relative cost of different heating systems. For a start, there is public policy. For example, the Boiler Upgrade Scheme (BUS) £7,500 grant directly improves the economics of clean home heating by subsidising the upfront costs of the kit. Financing options can also play a role in shaping consumer choices.

Running costs are influential too. A heat hump’s lifespan and day-to-day efficiency can each alter its relative cost compared with a gas boiler. Smart ‘time-of-use’ tariffs and whether a household with a new heat pump is able to fully disconnect from the gas grid are other key considerations. So too is the potential change in energy demand for heat pump users.

It’s not just household-specific factors that shape affordability. Gas and electricity prices, and the ratio between them, also affect the relative cost of different heating systems – energy shocks can change the picture both quickly and dramatically.

No single variable explains the whole story. Rather, it is a combination of factors – at the individual household, economy-wide, and policy level – that dictate whether it makes financial sense to swap out a gas boiler for a heat pump.

Policymakers working on the electrification of home heating should prioritise three areas: reducing upfront capital costs through grant funding and/or loans; maximising day-to-day efficiency by promoting quality heat pump installation and optimised configuration; and targeting a lower electricity-to-gas price ratio. Taken together, these factors add up to create favourable conditions for heat pump uptake.

Our new tool compares the lifetime cost of an air-to-water (A2W) heat pump with a gas boiler. It combines an array of adjustable variables – from efficiency to subsidy value to energy price growth – to deliver bespoke equivalent annual cost (EAC) values for each heat system under a chosen set of conditions.

The following charts set out the baseline scenario – that is, the position today without any changes – for the lifetime costs of an A2W heat pump versus a gas boiler.

Starting with the heat pump, without a subsidy the annualised cost of an A2W unit varies from £2,600 to £2,380, depending on the installation year. The reason the figure drops slightly over time is because the model assumes that installation costs fall by 2.5% each year (this assumption is based on the historical trend in heat pump costs). For clarity, each point on the chart above denotes the annualised cost of the heat pump installed in the given year; it takes into account the whole life of the heat pump from that point.

Plotting the cost of a gas boiler highlights the gap between the two systems. With no subsidy in place, A2W heat pumps are much more expensive in annualised terms, regardless of install year. This is shown by the space between the purple (boiler) and grey (heat pump) lines.

Introducing the government’s £7,500 BUS grant changes the picture. The new green line plots the annualised cost of a heat pump with the subsidy in place. Lowering the upfront cost of the A2W unit brings the annualised costs down by £630 (if installed in 2026).

However, even with the subsidy in place, gas boilers remain cheaper in annualised terms in this scenario if installed before 2031. At this point, all else being equal, the gradual drop in A2W installation costs allows the clean technology to drop below the gas-powered threshold – but only after five years. That tells us that the baseline scenario, even with BUS in place, is probably not strong enough. Further changes are needed to make heat pumps the most attractive financial choice.

The lifetime costs tool includes an array of adjustable variables that shape the lifetime cost of the two heating systems, ranging from the kind of energy tariffs used to the impact of interventions that the government could make on the cost of electricity. In the following scenarios, each set of factors compounds on top of the previous (unless otherwise stated).

For a full breakdown of the assumptions for each scenario, see the appendix at the end of this data story.

Time-use-tariffs and removal of gas standing charge

Starting with tariffs, introducing a time-of-use tariff and removing the gas standing charge for A2W users makes heat pumps cheaper in annualised terms. We think heat pump users can save money on their energy bill by using a time-of-use tariff, because heat pumps tend to use more of their electricity at times when it is cheaper.

In this scenario, we assume a 15% saving on the electricity unit rate for a time-of-use tariff. This reduces the effective electricity price used in the heat pump's running cost only. It does not affect the upfront costs.

At the same time, if we also assume that a heat pump customer is able to ‘fully disconnect’ from the gas grid (i.e., they don’t have a gas hob), then we can drop the gas standing charge from their running costs. (note: as part of the 2026 Autumn Budget, the Chancellor, John Healey, announced that the government has asked Ofgem to abolish gas standing charges on domestic energy bills by the end of 2027).

Taken together, these changes make a heat pump £260-£370 cheaper in annualised terms than a gas boiler, depending on installation year. So although the baseline did not look too promising for heat pumps, there are actions households can take to make a heat pump a financially smart choice.

Heat pump lifetime extended to 20 years

The lifespan of the heating technology also affects the annualised cost. If a system lasts longer, then the upfront (or ‘capital’) costs are spread across more years, lowering the EAC.

Analysis by Ovo Energy suggests that a well-installed heat pump running in optimal conditions can last 20 years or more. If we assume that the A2W unit lasts 20 years (up from 15 in the baseline case), then the annualised cost of the heat pump is £330-£430 cheaper than a gas boiler.

Heat pump efficiency (SCOP) increased

The efficiency of each heating system affects their relative cost too. To measure efficiency, analysts use a metric called the ‘Seasonal Coefficient of Performance’ (or SCOP). This describes how much heat is produced per unit of energy used.

In the baseline scenario, heat pump SCOP is assumed to be 3.0: this means three units of heat are produced per single unit of energy used. According to analysis by Smart Solar Homes, a well-calibrated heat pump can run at SCOP 3.5. This can be achieved by making small adjustments like reducing flow temperature. We know that heat pumps can be even more efficient than this, but achieving that at a large scale might be challenging.

Holding all previous assumptions in place, increasing the heat pump’s SCOP to 3.5 lowers the lifetime cost of the A2W system, making it £520-£610 cheaper than a boiler in annualised terms depending on installation year. This is driven by lower running costs (as less energy is needed to deliver the same amount of heat).

Increased heating demand

On the other hand, A2W households often use more heating energy than an equivalent home with a gas boiler. Research from the Cambridge Institute for Sustainability Leadership shows that heating demand can be between 5-20% higher for heat pump households compared with boilers. This is because heat pumps typically provide steady, ambient heat throughout the day, and are less good at the intermittent heating boilers can do. This isn’t strictly a like-for-like comparison, because the heat pump user is enjoying more comfort from the extra heat, but it does affect costs.

If we assume that heat pump customers increase their heating demand by, say, 10%, then the ‘saving’ compared with gas boilers in annualised terms shrinks slightly compared with the previous scenario (because heat pump running costs increase).

So far, our analysis has assumed flat unit prices for both electricity and gas. For both fuels, prices are set at the current Ofgem price cap: 7.97 p/kWh for gas and 23.11 p/kWh for electricity.

But static prices are unrealistic. The cost of both fuels are sensitive to a number of factors, including domestic energy policy and external geopolitical events. For example, following Russia’s full-scale invasion of Ukraine in February 2022, the unit price of gas increased by over 300%. We are currently experiencing elevated prices for gas as a result of the conflict around the Strait of Hormuz: gas prices rose by just under 25% in July 2026, following the outbreak of the war.

Lower price ratio

Introducing a hypothetical energy price shock into our analysis highlights the role of fuel prices in home heating decarbonisation. While the absolute change in prices is, of course, important, it is the ratio between the unit price of electricity and gas that we are most interested in here.

A one-off energy price shock next year that permanently increases gas prices by 25% and electricity prices by 10% gives us a price ratio of 2.9 from 2027 onwards. Holding all previous assumptions in place, this scenario would make an A2W unit £670-£780 cheaper than a gas boiler in annualised terms. This is driven by a relatively large surge in running costs of the gas boiler.

The price ratio of 2.9 is not a coincidence. Nesta analysis suggests that a ratio of 2.9 is the ‘tipping point’ for heat pump adoption, immediately making them the most affordable way to heat a typical UK home.

Of course, a real-life price shock of this magnitude would be incredibly challenging for households and government alike, and would have an outsized impact on vulnerable groups. However, the point here is that fuel prices – and the ratio between them – has a major impact on the economic appeal of different heating systems: a lower ratio means heat pumps are a better financial choice.

One way to potentially lower the price ratio would be to remove the gas standing charge and move the cost over to the unit rate (as announced in the 2026 Autumn Budget). Nesta calculates that this change would save the typical dual fuel household £27 per year, and that 64% of dual fuel households will be better off under this policy – all while boosting the economic case for heat pumps.

Higher price ratio

This same logic applies in reverse. If fuel prices were to shift such that the new price ratio was 5.0 from 2027 onwards – a level last seen during the tailend of the Covid-19 pandemic – then the picture flips. In this scenario, relatively low unit prices for gas would make boilers cheaper in annualised terms than heat pumps.

Taken together, these two hypothetical fuel shock scenarios highlight just how sensitive the uptake of heat pumps is to the price ratio. While changes in absolute costs do of course matter greatly for individual bill-payers, it is the relationship between the two fuel prices that shapes home decarbonisation.

So far we have focused solely on running costs. While both household-level changes and volatile fuel prices affect the headline lifetime figure by shifting month-to-month costs, government subsidies and/or financing loans also affect relative affordability by shaping upfront (or capital) costs.

As it stands, the £7,500 BUS grant has a substantial impact on the economic appeal of a heat pump. All else being equal, and returning to ‘stable’ fuel prices, A2W units are £410-£500 cheaper in annualised terms than gas boilers with the grant in place.

Removing the subsidy

Removing the BUS grant completely changes the picture. Even with all our previous household-level assumptions in place (longer lifespan, better SCOP, etc), dropping the subsidy makes a heat pump more expensive than a gas boiler in annualised terms if installed within the next five years.

Put differently, removing the BUS grant would undo the effect of several other compounding household-level measures that improve the affordability of heat pumps. This is because the capital costs (even when spread over 20 years rather than 15) would increase drastically, pushing up the annualised figure to a point where the gas boiler is once again favourable.

As it stands, the government has stated it will cap BUS funding at the current level of £400 million in 2027-28, before tying future uplifts to inflation. This represents a £730 million cut in funding for heat pump deployment over the three years, relative to previously announced levels.

Loan financing

In the absence of a government grant, some customers may take out a loan to finance their new heat pump. In this scenario, the annualised cost of the A2W increases further, and remains above that of the gas boiler if installed before 2034. Looking at the corresponding price breakdown chart, this is because loan interest (the yellow slice in the left-hand bar) pushes up the EAC for the heat pump, while the gas boiler is unchanged.

Crucially, this is not to say that financing is itself a problem. In fact, if a customer does have access to the £7,500 BUS grant, and takes out a loan on the same terms as the previous scenario, we arrive back at a situation where the heat pump is comparatively cheaper in annualised terms (by £380-£480 depending on installation year), even with loan interest taken into account.

A series of seemingly small changes can add up to make a big difference to the relative cost of different heating technologies. Small nudges in the right direction in terms of time-of-use tariffs, heat pump lifespan and efficiency combine to create more favourable conditions for customers looking to make the switch. Being able to disconnect from the gas grid helps, even if heating demand increases for A2W users.

Outside of the individual household, fuel prices also have a big role to play. In a situation where gas prices grow faster than electricity prices, as has been the case with the ongoing crisis triggered by the US-Iran conflict, a narrower price ratio improves the relative affordability of an A2W system by lowering relative running costs compared with a gas boiler. By contrast, a widening ratio makes boilers more appealing.

But running costs are only part of the story. The upfront (or capital) cost component of the annualised figure is also sensitive to external changes. For example, removing the BUS subsidy would turn the story on its head, even with our other assumptions factored in. Financing the initial spending for a heat pump, in the absence of a grant, would make the A2W even less favourable. On the flip side, the grant creates space for a household to take on a loan, with debt interest costs cushioned by the savings generated by the grant.

Policymakers interested in helping the UK reach its home decarbonisation goals must keep in mind the combination of household-level, external and financing factors that affect lifetime costs. The focus should be threefold: protecting heat pump funding options to reduce upfront costs; promoting efficiency through best practice in heat pump installation and configuration; and finding ways to lower the electricity-to-gas price ratio (by moving the gas standing charge over to the unit rate, for example).

What is clear is that the combination of a few small changes can make a big difference to the economics of heat pumps. So too can evolving fuel prices, and in particular the ratio between electricity and gas. At the same time, removing funding such as the BUS grant could transform the home decarbonisation landscape, wiping out any incremental gains from better household-level efficiency or favourable fuel prices.

For a full breakdown of underlying assumptions for each scenario, consult the documentation tables below.