When 'free solar panels' can prove an expensive mistake

By Ian Cowie Your Money Last updated: April 11th, 2012 136 Comments Comment on this article

Are they a good idea? Fears that "free solar panel" offers to generate 1,000 a year out of thin air looked too good to be true will be fuelled by new claims that banks and building societies are refusing mortgage applications. Some properties where photovoltaic (PV) panels have been installed are proving unmortgageable and unsaleable, hitting house prices. Worse still, the bad news comes not from critics of renewable energy but professional intermediaries with every reason to hope house sales can proceed; surveyors and mortgage providers. Institutions are wary of criticising government-backed schemes to save the planet but they are also reluctant to be left with bad debts if property deals turn sour. David Dalby, a director of the Royal Institution of Chartered Surveyors told me: 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. Not all solar panels are affected. Those which may cause problems were installed by solar companies free of charge to the householder, which then sell any extra energy generated back to the grid under the Governments Feed-in Tariffs scheme (FITs). These schemes are usually based on leases of 25-years for use of the roof space, which requires the prior approval of the mortgage lender, which RICs claims many lenders are refusing to provide. The news follows early scepticism about some offers and questions about contract terms and conditions. Where a mortgage lender does refuse the mortgage on the basis of the roof-lease, the solar company may offer a buy-out option to the prospective buyer who can purchase the installation at the price stated in the original lease agreement, less depreciation. However, typical costs of between 10,000 and 12,500 could come as a nasty shock for new owners who may already be pushing their finances to the limit. If the worst comes to the worst, installation companies could refuse to sell their kit to new homeowners and seek to charge for removing the panels and the loss of income from the feed-in tariff. Even the risk of litigation could block a sale, causing the house price to plummet. Paul Broadhead of the Building Societies Association said: Most building societies will consider lending on properties with solar panels. One factor that will sway their decision towards a refusal is if they believe that the roof space leasing agreement with the panel provider, makes the property less saleable. Leasing roof space to a third party is still a pretty new phenomenon and ought to be treated with caution by homebuyers and lenders alike until the industry is better regulated and controlled. There are number of issues with these schemes and some of the providers. These are primarily driven by the lack of any regulation of panel providers. There is an accreditation scheme but it does not have any statutory backing, and not all providers subscribe to it. There are also some instances of high pressure sales techniques and home owners are often being required to lease the airspace above their roof for 25 years, usually with no break-clause. It is patently important for consumers to be very clear what they are signing up to and the long-term implications. Similarly, a spokesman for the Council of Mortgage Lenders (CML) said: Lenders support the principle of green energy initiatives, but want to ensure that solar panel leasing agreements do not adversely affect the value or marketability of the property.

Ensuring compliance with the CMLs minimum requirements should reduce the chance of a borrower encountering problems in trying to sell or remortgage the property, or in carrying out repairs and maintenance. The 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 borrowers circumstances over that period, or the need for maintenance or repairs, should not create a financial burden for either the lender or borrower. Mr Broadhead emphasised that these problems do not apply to panels that have been bought by the homeowner and professionally installed. Indeed, some building societies will offer further loans to buy solar panels. The BSA has produced factsheets on how tell one type of solar panel agreement from another which you can see here. It all goes to show there is nothing new under the sun and that, when it comes to financial services, free can prove the most expensive word in the English language.