Saturday, October 13, 2007

Green Wibble Mortgage Madness

Good news for some... but not us

According to detailed research by the Royal Institute of Chartered Surveyors (RICS), the government's plan to have us make our homes green really is financial madness.

As we know, the Commissars have decreed that sales of homes with more than three bedrooms must now be accompanied by one of those unwanted and unnecessary Home Information Packs(see many previous blogs eg here). And the HIP has to include an Energy Performance Certificate, listing eight green measures to secure a high rating of A or B against a poor rating of F or G.

"But the study from the Royal Institute of Chartered Surveyors shows that some of the measures, such as solar panels to heat water, would cost £5,000 to install but reduce average bills by only £24 a year and would take about 208 years to pay back.

The RICS data shows that putting in all eight measures, including insulation, condenser boilers and double glazing, would cost £23,547. This would knock only £486 off fuel bills and would take 48 years to recoup."

48 years. That's bad enough.

But once you take account of the cost of money- ie mortgage rates - you find there is no payback. At all. You'd be much better off not doing the work.

That's because £486 pa saving is a mere 2.1% of the estimated £23,547 capital cost of installing the solar panels etc. But the additional mortgage you will need to fund the work, will cost substantially more than that. In fact, today's best buy fixed rate mortgage is going to cost you around 5.4% pa. And that means its annual interest cost will £1,272 pa- £786 pa more than your annual fuel saving.

And remember that's just the interest, without repaying any of the £23,547 capital you've borrowed.

So what about the real overall cost?

We compute the total overall cost by finding the net present value of all those £786 annual payments stretching into the infinite future. At our 5.4% pa best buy mortgage rate it comes to about £15,000 (depending on the exact timing of interest payments and savings).

So you should forget those promised savings on your fuel bill. This deal will cost you £15 grand.

Like so much else in the eco-wibble universe, it is pure financial lunacy.

PS The Nobel Peace Prize for eco-bandwagoner St Al of Gore has at least made us look more carefully at how on earth these people get picked. And it turns out the whole shooting match is a bizarre closed shop of Norwegian commissars. Over the century it has been running, the winners list principally comprises a bunch of unknowns who made no discernable impact on world peace, plus a raft of usual suspect international bureaucracies like the UN. Nominees have included Stalin, Musso, and the Fuhrer himself- they only needed Pol Pot to make up the full set.

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