Heat pumps have increased in popularity in recent years due to their energy and cost efficiency. They are an environmentally friendly solution that are being adopted by all types of developer, property owner and landlords in the face of a likely government ban on the installation of gas boilers (at least in new buildings). There are two major types of heat pumps currently available – ground source and air source – which is best will depend on individual need.

Benefits

Less reliance on carbon intensive fuel

As the UK moves towards its 2050 net-zero target, property owners, developers and landlords must become ever more mindful of the ways in which they use energy to heat their properties. Heat pumps use electricity to pump and compress heat for distribution around buildings, rather than burning gas to power central heating, so reliance on carbon intensive fossil fuels can be drastically reduced or eliminated entirely. It's also common to combine heat pumps with on-site energy production and storage in the form of solar panels and batteries, meaning that clean energy is used throughout the process of heating their properties. This environmentally friendly approach can support ongoing ESG initiatives (and be attractive to environmentally conscious property buyers and tenants), save on long-term running costs (if some/ all of the power is solar generated) and provide a degree of self-sufficiency.

Easy to install and maintain

Consent is not typically required to install or operate a heat pump, meaning that there is little friction involved for the property owner or landlord who wishes to reduce their carbon footprint and, in the case of a landlord, appeal to environmentally conscious tenants. The typical cost of installing a heat pump can range from £6000 to £12000, with air source pumps being cheaper to install but ground source pumps more efficient overall. There is government support available to help with the cost under the Boiler Upgrade Scheme (on which, please see more below). Once fitted, heat pumps require little maintenance and can save thousands of pounds on heating bills every year for occupiers, leading to the possibility of improved rental income for landlords.

Increased property value

Beyond their value as a low-carbon heating solution, heat pumps have additional potential as an investment opportunity. With the UK government's target to stop installing gas boilers in new buildings after 2025 (and potential for that to be extended to all gas boilers in the longer term), demand for heat pumps is only likely to increase in the coming years. What's more, increasing energy consciousness amongst the population in light of climate change - and energy security concerns following Russia's invasion of Ukraine - mean that the pursuit of alternatives to the use of fossil fuels in all contexts is likely to increase in the coming years.

The boiler upgrade scheme and Clean heat market mechanism

To aid the adoption of heat pumps as an alternative to gas boilers, the UK government has introduced the Boiler Upgrade Scheme (BUS). The BUS offers a grant of £7,500 towards an air source or ground source heat pump, which should cover most of the cost of installation, and counter one of the common concerns about rolling out heat pumps more widely – high initial installation costs.

In addition, a forthcoming Clean Heat Market Mechanism will mean fossil fuel boiler manufacturers have to sell an increasing proportion of heat pumps each year, so the market for heat pumps will grow and their costs will come down over time. This Government mechanism, intended to incentivise the heat pump industry, has been pushed back from its initial implementation date, in recognition of the fact that time is needed for manufacturers to scale up production and for the consumer uptake of heat pumps to accelerate.

Things to be aware of

Not all properties are suitable for the installation of a heat pump. A heat pump is larger than a typical boiler and so the space required can be a limiting factor in some cases. Additionally, ground source heat pumps need a large enough outdoor space to allow for a ground loop to be installed. These kinds of alterations can also give rise to the need for consents to be obtained if the land is charged or an interest in a property is held as a leasehold.

A landlord installing a heat pump should also consider the disruption caused to tenants and the need to ensure that they are informed of how the heat pump works.

With most properties, however, these will be minor hurdles against the long-term benefits and, as heat pump installations accelerate, we'd expect to see procedures for consents or leasehold approvals becoming increasingly straightforward.

How Addleshaw Goddard can help

We are experienced in advising on the replacement of boilers with heat pumps, having recently assisted a housing association update their entire portfolio of properties using grant monies. The installation required lender consent and the establishment of safeguards to be relied on in the event of a heat pump failing.
We have also advised boiler manufacturers in relation to their heat pump roll-out, including on arrangements with energy suppliers for beneficial tariffs to encourage consumer uptake of heat pumps.

To sum up

If you are a developer,  owner or landlord of a domestic or commercial property, installing a heat pump could be a great way to reduce your carbon footprint and improve your revenue. Heat pumps' reliance on electricity rather than gas as fuel means that they can be paired with renewable energy to further reduce costs and emissions. Whilst initially costly, prices are likely to continue to come down as the market expands, and consumers can already benefit from the subsidy under the BUS.