Ask the Experts Grand Designs Q&A: June '09

Date Published:

07/05/2009

Heat Pumps Explained

I’ve been reading about air and water source heat pump technology, but don’t quite understand the difference between the two. Please can you explain.

Adam Ritchie replies The answer is that there is no great difference. My favourite simplistic analogy for an air source heat pump is the fridge in your kitchen, which is essentially a small heat pump arrangement to move heat from inside the fridge to outside, thus cooling down the food inside. The science part is that a heat pump drives a cycle of evaporation of a liquid refrigerant, which cools down the inside of the fridge. The refrigerant, which is now a gas, is then condensed back into a liquid outside the fridge rejecting heat into your kitchen via the finned radiator at the back of the fridge (hence the need for a gap behind the fridge for warm air to escape).

For this example heat is being taken from the air inside the fridge, so this is an ‘air source’. To heat your home, heat could also be taken from water in a lake (a water source), or from the ground (ground source), cooling both down in the process. The only difference is, therefore, where the heat comes from. Unlike fridges, heat pumps for buildings are often reversible so that they can either heat or cool.

I want to extend my home and am looking into ways of financing the project. In the current economic climate, am I better off looking at remortgaging or getting a loan? Or do you have any other ideas?

Mary Riley replies If you have a mortgage on your current home I would suggest that you either engage with your current mortgage provider or remortgage your existing property, as the rate of interest of secured borrowing (mortgage) is much lower than unsecured borrowing (getting a loan).

You do not necessarily need the term of the additional borrowing to be over the same term as your existing mortgage, providing the term taken is less than the remaining term. Obviously, if you reduce the repayment term, the monthly mortgage payments will be higher. However, the interest payable over the term of the loan will be reduced. Your mortgage consultant will be able to advise you of the appropriate term for your own financial circumstances.

If you remain with your current lending institution you would apply for a further advance. Generally, further advance funding incurs a higher rate of interest. Additional associated costs may include a lender’s application fee and a valuation fee. The current loan-to-value on your home and the anticipated end loan-to-value will be taken into account when your case is being assessed. Ensure that there is the facility for funds to be released in stages during the project. It is also important that you are aware of the key stages at which funds will be released to ensure that your cash flow can accommodate the payment of invoices.

Subject to your current loan-to-value you may opt to remortgage to a new provider, but check if you will incur early redemption charges when you exit your current mortgage facility as these can be costly. If you do decide to remortgage, you will have a wider choice of mortgage products available to you. However, depending on the product, you may be required to draw down all the funds in one stage and interim funding may not be available. If this is the case you will incur interest on funds you do not require at this stage of the build project.

Whether you approach a lending institution directly or engage with an independent mortgage consultant, advise them at an early stage of your financial requirements. High street banks and building societies may have products to suit your requirements, with some offering a ‘fee free’ package, whereby legal and valuation fees are paid by the lender. However, as we know, there is ‘no such thing as a free lunch’ and the associated costs will be incorporated in the pricing of your mortgage product. Products available range from Bank of England base rate trackers, to fixed rates, and discounted rates. Subject to your current loan-to-value, you may wish to consider an open-plan mortgage whereby you are offered a specific lending facility and you have access to the additional funds on a draw down basis. As with a further advance application, the new lender will require a valuation report to be carried out stating the current value of your home and the anticipated end value. As usual you will be required to provide additional supporting documentation, plans and build costs, and meet the institution’s lending criteria.

This edition of Ask The Experts is taken from the June issue of Grand Designs magazine. If you would like to subscribe for as little as £9 then head here to find out more.