How to pay for a heat pump in 2026: five UK finance paths compared

The BUS-grant mechanics matter for every option

The £7,500 Boiler Upgrade Scheme grant is paid by Ofgem directly to your MCS-certified installer, who applies it as a line-item discount on your final invoice. The homeowner never receives the £7,500 in their bank account. Practical implications for finance:

• Quote the NET amount, not the gross. When asking installers for finance options, the relevant number is the net-of-grant balance. A £10,500 gross install becomes a £3,000 net amount to finance.
• Grant deduction happens automatically. You don’t need to claim the grant separately; the installer handles the Ofgem application. You sign a consent form authorising the installer to claim on your behalf.
• If the install doesn’t complete, the grant doesn’t pay out. Finance providers structure their products around the typical 4–10 week install timeline. Some lenders disburse funds in tranches (deposit on order, balance on commissioning); confirm with your installer how their lender handles the timing.

Cash — the cheapest option in absolute terms

If you have £4,000+ in savings earning meaningfully less than 4–6% (typical instant-access savings rates in 2026), paying cash is the lowest total cost option. No interest, no fees, no exit charges, no FCA paperwork.

The trade-off is opportunity cost. £4,000 from a Stocks & Shares ISA growing at ~7% real return compounds meaningfully over 20+ years; £4,000 from a Cash ISA at 4-5% does too. For households with longer-horizon savings invested at higher real returns, financing the heat pump and keeping the savings invested can produce a better net outcome — provided the finance rate is materially below the investment return.

Installer 0% APR finance — the common path

Most large UK MCS installers offer 0% APR over 24, 36, or 48 months through FCA-authorised consumer credit providers (Hitachi Capital, Klarna, Novuna, V12 typically). The installer absorbs the lender’s cost of capital as a subvention from the headline price; you pay equal monthly instalments with no interest.

• Eligibility: credit check, typically requires a credit score in the upper half of the UK range. Adverse credit history (recent defaults, IVAs) may decline.
• Deposit: commonly 0–20%. Some installers waive the deposit; some require 10–20% upfront to qualify for the 0% rate.
• Documentation: standard consumer credit agreement. You receive a credit agreement, have a 14-day cooling-off period, can repay early without penalty.
• Watch for:the “subvention” discount. Some installers price the headline install higher to absorb the lender cost, then offer 0% finance on the higher number. A useful sanity check: ask for the cash-equivalent price separately — if it’s materially lower than the financed quote, the “0% APR” isn’t free, you’re paying the finance cost via a markup.

Green mortgage add-on — cheapest non-cash option, longest term

UK major lenders (Halifax, NatWest, Nationwide, Barclays, Santander) offer green mortgage products with rates typically 0.05–0.25% below standard variable. Some go further and offer “additional borrowing” on top of an existing mortgage to fund energy-efficiency upgrades — the heat pump becomes part of your overall mortgage balance.

• Rate:typically 0.05–0.25% below the lender’s standard variable, sometimes more on fixed-rate products. The lowest rate of any non-cash option.
• Term: the remaining mortgage term (commonly 20–30 years). Monthly payments are small but the total interest paid over the life is the highest of all options.
• Security: the heat pump becomes part of the mortgage-secured debt. The home is the security; if you default on the mortgage as a whole, repossession is possible.
• Documentation: full mortgage underwriting — affordability assessment, valuation, legal fees on the addition. More paperwork than a consumer credit agreement.
• Watch for:early-repayment charges if you overpay outside the lender’s annual limits; the long term means you pay interest for far longer than other options. If you can clear the heat-pump balance within 5 years anyway, a green mortgage add-on may not be the cheapest total-cost route despite the lowest rate.

Secured personal loan — quick but expensive

Personal loans typically run 6–10% APR over 3–7 years for amounts in the £3,000–£10,000 range. Some products are unsecured; some are secured against the property (which means lower APR but introduces repossession risk).

• Rate: the highest of the non-cash options. £4,000 over 5 years at 8% APR adds ~£900 in interest.
• Speed: approval often in days; disbursement in 1–2 weeks. Fastest of the credit options if you need to act quickly.
• No installer dependency:the loan is between you and the lender; you can pay any installer. Useful if the installer you want doesn’t offer finance.
• Watch for:secured vs unsecured framing. Some advertisements promise “0% APR representative” for the best credit scores only; most applicants don’t qualify. Use the representative APR as a floor, not a ceiling.

Heat-pump-as-a-service — emerging, read the small print

A handful of UK firms now offer heat-pump-as-a-service: they install and own the heat pump on your property; you pay a monthly fee covering use + maintenance for typically 10–15 years. The fee usually includes service contracts + breakdown cover. After the contract term, ownership may transfer to the homeowner, the contract may roll, or the provider may remove the equipment.

• Upside: no upfront cost, ever. No credit check on the install itself (though some providers credit-check the monthly payment commitment). Service + maintenance bundled.
• Downside:total cost over the contract typically 1.5–2× the cash-equivalent. You don’t own the asset, so you can’t sell the property with the heat pump included without provider consent (usually involves transferring the contract to the buyer or paying out the remaining balance).
• Regulatory framework:varies by structure. Some heat-pump-as-a-service products are regulated under consumer credit rules; some under lease/rental rules. Verify the provider’s FCA authorisation and read the early-termination clauses carefully.
• Best fit: households without the credit profile for traditional finance, or with very high uncertainty about staying in the property long- term. Otherwise the total-cost premium is hard to justify.

How to compare your specific options

1. Get the cash-equivalent quote from your installer.Even if you plan to finance, you need the cash baseline to compare any finance offer against. Some installers won’t volunteer it; ask explicitly.
2. Compare TOTAL cost over the finance term, not monthly payment. A 10-year green mortgage at 0.2% feels cheap monthly but adds more total interest than a 4-year 0% installer finance does.
3. Verify FCA authorisation.Every legitimate finance product is provided by an FCA- authorised firm. Check the firm’s registration at fca.org.uk/firms/financial-services-register. If you can’t find the provider, that’s a significant red flag.
4. Check exit / early-settlement terms. Particularly important for green mortgages (early-repayment charges) and heat-pump-as-a-service (contract-exit fees).

What this means for most UK homeowners

For a typical UK 3-bed semi installing an air-source heat pump in 2026:

• £4,000+ in low-yield savings: pay cash. Cheapest in absolute terms.
• No spare savings but good credit: 0% installer finance, ideally 36–48 months. Best risk-adjusted option.
• Doing a wider energy retrofit (loft + cavity + heat pump): green mortgage add-on. Bundles the whole package at the lowest non-cash rate.
• Adverse credit: secured personal loan OR heat-pump-as-a-service. Compare carefully — secured loans have repossession risk but lower total cost than the subscription model.

The takeaway

The £7,500 BUS grant handles most of the heat-pump cost; finance addresses the remaining £1,500–£6,500. Cash is cheapest, 0% installer finance is the common compromise for households without spare savings, green mortgages are cheapest non-cash but pay over 25-30 years, secured loans are quick but expensive, and heat-pump-as-a-service is emerging but commands a meaningful total-cost premium. Every option works through an FCA-authorised provider — verify the lender registration before signing anything.

Related reading

• Heat pump payback period UK 2026 — worked payback calculations help decide whether financing is worth the interest cost or whether cash out-performs over time.
• BUS grant application walkthrough — confirm grant eligibility before committing to a finance product; ineligibility shifts the funding gap dramatically.
• Heat pump vs gas running costs UK 2026 — the running-cost saving is what justifies the install over a finance term; make sure the maths works.