Households taking out a new Green Deal Finance loan will no longer be charged for repaying early – but existing customers will still have to pay them.
The Green Deal is a Government scheme to encourage homeowners to make their property more energy-efficient by installing measures including insulation, double-glazing and new boilers (our full Green Deal Mythbuster guide has more about the scheme works).
Households which don't have the money to pay for improvements upfront can take out a loan and repay it over the next 10-25 years from the savings made from lower energy bills.
But while 210,239 households have had their home assessed for Green Deal improvements in the past year, only 2,439 agreed to take out a loan.
Now the early repayment charges have been dropped in an attempt to boost the scheme's popularity.
When the Green Deal Finance scheme launched in May 2013, early repayment charges – which differ depending on the length and the amount of the loan – applied to all loans barring those lasting less than 15 years where the early repayment was less than £8,000.
These rules still apply for anyone who took out finance before Friday 16 May, although lenders are being encouraged to waive early repayment fees for plans that have already been purchased.
Before the finance scheme launched, MoneySavingExpert.com creator Martin Lewis suggested dropping the early repayment fees (see his 10 changes that'd make the Green Deal more popular blog post).
He wrote: "People should always be allowed to pay off their debts earlier with no charge if they choose to. Full stop. End of."
'Step in the right direction'
Martin says: "The Green Deal is a good concept that unfortunately has been set up in a way that is too scary and bureaucratic for people to take advantage of in any number.
"One of the problems I, and others, pointed out to the Government at launch was early repayment penalties. People worry that as the loan belongs to the property not the person, that it'd stop them being able to sell their house. They therefore want to be able to pay the loan off at that point, but the penalties made that more expensive.
"Getting rid of penalties is a step in the right direction, though I do worry many more changes are still needed before the Green Deal will become as popular as it should be."