Demand for heat pumps on the rise - how to lower the cost of installation

Heat pumps are growing popular in UK households spurred by attractive incentives as the government, energy firms and lenders help homes green up

Heat pumps
(Image credit: Getty Images)

Despite a 39% surge in demand for heat pumps in the last year, less than half of planned heat pump installations were carried out, according to the latest report by the National Audit Office (NAO). 

According to the public spending watchdog, if the government wants to reach their goal of setting up 600,000 million heat pumps by 2028, they would have to increase sales by eleven-fold.

Heat pump installations have risen by 10% every month since the Government's Boiler Upgrade Scheme started offering grants of up to £7,500. However, this scheme has not met expectations, with only 18,900 heat pumps installed from May 2022 to December 2023, falling short of the anticipated target of 50,000. 

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The NAO attributes the low uptake to several factors, including limited public awareness of the technology, substantially higher costs compared to gas boilers - nearly £10,000 on average, and the absence of long-term financial support for UK households.

And with April price increases on the cards such as council tax rises, mobile and broadband hikes, surge in water bills and high mortgage rates, households would appreciate any kind of financial relief. 

Heat pumps allow you to heat your home in an environmentally-friendly way. They are significantly more efficient than gas boilers, producing around four times the energy they use, and are more reliable, requiring minimal maintenance and lasting at least 20 years. They are seen as key to decarbonising UK properties as the country aims for net zero by 2050.

The growing demand for the new technology may be partly explained by a rush of recent incentives such as government vouchers of up to £7,500, new cheaper heat pumps being offered by British Gas and Octopus, interest-free finance from E.on and cash rewards for mortgage borrowers at Barclays and Halifax.

We explain the costs and discounts you can get when deciding to install a heat pump.

How much does it cost to install a heat pump?

The average cost of installing an air source heat pump is around £14,000 according to the Energy Saving Trust.

The government’s Boiler Upgrade Scheme offers a grant of £7,500 towards this cost, which means you could still pay up to £6,500 (based on the average installation cost).

But if you opt for a heat pump from Octopus Energy or British Gas you could pay as little as £1,000 and £499 respectively when the government’s grant is included.

But additional upgrades such as better insulation, larger radiators and the installation of a water tank shouldn’t put you off from forking out a bit of extra cash to heat your home better.

About 17% of homes in the UK are suitable for a heat pump with no additional work, while another 50% of homes could be fitted with a heat pump for just £500 of additional costs, such as minor insulation, according to Octopus Energy.

It means 67% of households could be fitted with a heat pump for £500 or less after the government voucher is applied.

What discounts are available?

Until 2028, the government is offering a £7,500 voucher towards the cost of a heat pump. You can also get grants of up to £5,000 towards the cost and installation of biomass boilers, but this is only if you live in a rural area and your property isn’t connected to the gas grid. 

Other than that, here are the discounts you can get for installing a heat pump in your home:  

  • Octopus Energy’s heat pump product and installation costs are as little as £500 after the £7,500 government grant. If you live in a larger property, the costs could go up to £5,565.
  • British Gas’s heat pump product and installation costs as little as £499 including the grant. 
  • E.on offers interest-free finance for heat pump installation. You could pay as little as £75.33 per month over 10 years at 3.9% APR. 
  • Barclays offers £2,000 in cash rewards for new and existing mortgage customers who fit heat pumps in their homes. It also offers £1,000 cashback on solar panels and £500 on insulation or double glazing. No additional lending is required.
  • Nationwide will offer its mortgage customers interest-free loans between £5,000 and £15,000 to pay for energy-efficient improvements such as air source heat pumps and insulation. Known as the 0% Green Additional Borrowing home loan, borrowers will enjoy an interest-free period between two and five ye
Katie Binns

Katie Binns is an award-winning journalist, and former Sunday Times writer where she spent 10 years covering news, culture, travel, personal finance and celebrity interviews. She has also written for the Times, Telegraph, i paper and Woman and Home magazine.

Her investigative work on financial abuse has examined the response of banks, the Financial Ombudsman and the child maintenance service to victims, and resulted in a number of debt and mortgage prisoners being set free.

With contributions from