Options for Financing Retrofits in Ireland. Brendan Nevin Director of Consumer Banking Bank of Ireland

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1 Options for Financing Retrofits in Ireland Brendan Nevin Director of Consumer Banking Bank of Ireland

2 The potential for retrofit in the Irish market looks significant Almost 2 million dwellings in Ireland 87%* are houses 63%* built prior to the introduction of stringent Building Regulations Over 50% of houses tested have a BER rating of D1 or worse Energy price increases Over 30%* of households are owned with no mortgage * Internal Bank of Ireland estimates based on 2006 census data 2

3 Especially considering a typical house with high energy bills House 4 bed detached Built in 1970 Size of 150m 2 No mortgage / low loan to value Building Energy Rating (BER): E1* Energy usage 20% supplied by electricity and 80% supplied by fuel** (oil kerosene in this case) Expense Annual expected energy bill*** of 4,560, or 380 per month. * E1 corresponds to consumption of between 300 and 340 kwh/m 2 /yr, let s say an average usage of 310 kwh/m 2 /yr. At 150m 2, this implies annual energy usage of 46,500 kwh ** Consistent with SEAI research *** Average prices per kwh: for electricity and for kerosene (Source: SEAI domestic fuels comparison, July 2010)* 3

4 The cost and benefits involved make it a big decision Cost estimated 12,700 after HES grant Estimate that Roof insulation, external wall insulation and a high efficiency oil fired boiler with heating controls upgrade will cost circa 17,650* HES grants available for these options will total 4,950, reducing the net amount to be financed to 12,700. After installation, we ll assume these retrofits would improve the BER from E1 to C2**. Benefit estimated at 153 per month This represents an energy saving of 40%, a new bill of 227 per month and a saving of 153 per month. Future energy price increases will increase the savings further. Benefits are uncertain at the time the decision is being made * Calculated in conjunction with SEAI ** C2 corresponds to consumption of between 175 and 200 kwh/m 2 /yr, let s say an average usage of 185 kwh/m 2 /yr. At 150m 2, this implies annual energy usage of 27,750 kwh 4

5 Finance options do exist for a 17,650 retrofit Home Energy Saving scheme grants of 4,950 HES Grants are paid after full payment to the contractor. Recent publications have highlighted the potential for improvement in the current Grant process, especially around the timing of the provision of assistance. Finance options for net cost of 12,700 A range of finance options for a retrofit can be considered 1. Equity Release mortgage 2. Personal loan ( Green loan ) 5

6 Option 1 Equity Release Mortgage Equity release Borrow from 5k up to a maximum of 90% of the value in your home, with terms from 5-30 years Loan is secured on the property BOI offer the lowest variable rate in Ireland for an equity release mortgage to finance a retrofit (3.0% for an LTV below 50%). Flexible repayment options Benefits Utilise existing equity in the home Spread the cost over longer period Lower in-month expense vs. personal loan Flexible repayment options Drawbacks Mortgage Legal & admin expenses (estimate 1,000). Longer repayment period vs. personal loan Loan is secured on the property Financing 12,700 by equity release at 3.0% over 7 years costs 168 per month 6

7 Option 2 Green loan 7

8 Option 2 Green loan Bank of Ireland Green loan Green loans offer a discount of 1% to standard loan rate current Green loan rate for a loan of this size is 11.9% variable Borrow any amount from 2k - 25k, over a term of 1-5 years Flexible repayment options Benefits Cheaper set-up costs vs. Equity Release An option for consumers whose high LTV / Negative Equity rules out Equity Release Flexible repayment options Drawbacks More expensive than equity release Shorter term and higher rate mean much higher monthly repayments vs. equity release. Financing 12,700 by Green Loan at 11.9% over 5 years costs 278 per month 8

9 Finance options for a 12,700 investment Finance Monthly cost Total cost (incl. set-up costs) 1. Equity Release mortgage , Green loan ,680 Energy savings and recovering the investment The investment will give savings of 153 per month, or 1,836 each year for the life of the retrofit products. In each case above, the total investment will be recovered through energy bill savings in under ten years Increases in energy prices will increase the monthly energy saving Increases in interest rates will increase the monthly repayment for variable rate loans 9

10 Summary and conclusions 1. A range of finance options do exist for retrofitting, with attractive terms compared to standard products. It s always best to talk to a financial advisor before deciding on a particular finance option. The most suitable choice will depend on individual circumstances at the time of applying. 2. Our case study suggests that retrofitting does make sense. The positive effect on health, comfort, home value, etc. are also factors in any retrofit decision, not to mention the wider positive impact on the Irish economy and the CO 2 emissions of the country as a whole. 3. Demand is currently low. 4. Improvement in demand will be driven by Increased awareness and certainty over the benefits Smoother, up front grant process Wider improvement and confidence in the economy 10