These days it’s normal to remortgage every two or three years. You take a good deal on a fixed interest rate and once the fixed rate expires you switch to whichever lender is offering the best deal at the time. Provided you have sufficient equity in your property and a decent credit rating and your income hasn’t fallen since the last time you mortgaged you should have no problem taking your pick of the deals. That is unless, it seems, you’ve had free solar panels installed under a “rent a roof” scheme.
This warning follows a case of a Hampshire couple who have found themselves struggling to obtain a mortgage from two mainstream, CML member mortgage lenders, the Skipton Building Society and the Nationwide, who both state that the reason for refusal is the existence of a 25 year solar panel lease.
How Do Rent a Roof Schemes Operate?
Under feed-in-tariff scheme, designed to boost the domestic scale renewable energy generation market, those who install solar panels on a property are able to claim the tariff, currently 21p for every kilowatt hour generated, as well as benefiting from the free electricity produced by the panels. The tariff payments can be lucrative and on the right property with the right solar panels can be worth upwards of £1000 per year for 25 years.
There is no requirement however for the claimant to own the property upon which the panels are installed; he only needs to own the panels. As the free electricity is a real benefit on its own this has led a number of companies to offer to install panels free of charge in return for keeping the tariff payments. The home owner gets the free electricity with no outlay and the solar PV installer gets the guaranteed income from the tariff payments.
To ensure that they are allowed to keep the panels in place even upon a sale of the house itself a system has been devised whereby the homeowner grants the installer a 25 year lease of the roof space. This is then binding on future owners and, crucially, future mortgage lenders.
CML Guidance on Solar Panel Leases
Mortgage lenders will not generally tolerate third party interests which affect titles and may rank in priority to their charges as these can affect their security, making repossession or a subsequent sale more difficult or expensive and possibly even requiring them to buy out the interest should they wish to exercise their power of sale.
In response to the growing trend toward rent a roof schemes and the associated leases therefore the Council of Mortgage Lenders (CML), which represents the vast majority of high street lenders, including Skipton Building Society and Nationwide, found it necessary to formulate a plan for dealing with them. Its members did not simply want to refuse to lend and in so doing alienate a large section of the market (and be seen to be anti-green) but at the same time they did not want to place themselves at risk.
The result was a set of guidance notes on drafting solar panel leases in such a way as to be acceptable to mortgage lenders. This included a right for the lender to remove the panels and terminate the lease in the event that following repossession the lender is unable to sell or the value is reduced as a result of the panels, seemingly making the lender’s position safe.
Lenders’ Responses in Practice
Worryingly, in the Hampshire couple’s case the CML guidance was adhered to. Indeed, the installer even took the trouble to obtain the consent of their current lender, Royal Bank of Scotland, which approved the lease, so it was obviously a shock to discover that other lenders were not prepared to fall into line with the CML stance (which is not binding on lenders).
A spokeswoman for the Skipton Building Society said that they do lend on properties which are subject to a solar panel lease however their guidance to brokers, as at 20 February 2012, reads “The society will NOT lend where the panel provider is supplying and fitting panels free of charge, is taking income from the grid tariff scheme and is creating a long-term lease against the roof and roof air space.”
It was a similar story with the Nationwide, with the official line being that they are committed to lending on these projects but with the mortgage department telling the broker in this case on two occasions that they would only lend where they had lent originally.
Confusion Reigns but What’s the Solution?
The conclusion one must draw from this example is that whilst the boards of directors of the banks and building societies might be happy enough to lend, the message isn’t filtering down to those underwriters and advisers in the mortgage departments that make the lending decisions for individual customers, or it is but it is being ignored. This is perhaps not surprising given the recent history of dubious lending decisions and their consequences, resulting ultimately in global financial meltdown!
Time will help, as the decision makers learn more about solar panel leases and the boards have more opportunity to make clear their policies to their staff and the market for houses with existing solar panel leases is tested by future sales. Under the current CML guidelines however there is still a risk to lenders and these may have to change. As it stands, a lender can only remove the panels, which it may have to do at its own expense, if it has had trouble selling the property. The lender would therefore have to have marketed the property for longer than it would have normally expected to before being able to say that the solar panel lease is causing difficulties.
Even then it may not be so clear cut. When viewing a property and choosing not to buy; a buyer would rarely give just one reason. He might say “it needed a lot of work and I was concerned about the solar panel lease” or “I wasn’t sure about the area or the solar panel lease”. This could give rise to a legal challenge by an installer who thinks the lender is jumping the gun in asking for panels to be removed. All of this means potentially more loss to the lender in a negative equity situation.
So how to change things then? The only obvious solution would be to remove the lender’s obligation to show that the panels are affecting saleability and simply draft the leases in such a way that they have an automatic right to call for their removal on repossession. This would of course put installers in a dangerous position however as they would be gambling on the future popularity of solar panel leases to prevent lenders simply calling for their removal as a matter of policy.
Buying Your Solar PV Panels is the Safest Way
It seems that for now, the only safe way to proceed is to buy the panels outright. There is then no lease and nothing for lenders to be concerned with. Even if you don’t happen to have £8,000 – £10,000 spare cash, borrowing the money would still leave you better off financially than going down the rent a roof route if you do the deal right.