Mortgage Lenders and Solar Panels: Why Some Refuse

If you are buying or selling a house with solar panels, you may be surprised to discover that some mortgage lenders can be reluctant to lend on the property.

The solar panels themselves are not usually the problem. The issue can arise when the solar panels are owned by a third-party company and the roof space is subject to a lease.

This type of arrangement was particularly common with schemes where solar companies installed panels at little or no upfront cost to homeowners. In return, the solar company retained ownership of the panels and received the benefit of the electricity generation or associated payments.

For a homeowner, this may have seemed like an attractive way to get solar panels. However, when the property is later sold or remortgaged, the solar panel lease can become an important issue for the mortgage lender.

In this guide, we explain why some mortgage lenders won’t lend on houses with solar panels, what a solar panel roof lease is, why lenders are concerned and what you can do if you are trying to buy or sell a property with leased solar panels.

Why won’t some mortgage lenders lend on houses with solar panels?

Some mortgage lenders may refuse to lend on a property where solar panels are subject to a roof-space lease that does not meet the lender’s requirements.

The key issue is that the lender is taking the property as security for its mortgage.

If a solar company has a long-term legal interest in part of the property — usually through a lease of the roof space — the lender needs to make sure that its mortgage rights are not compromised.

UK Finance explains that most lenders’ mortgage conditions require consent before a lease is granted over roof space for solar panels. Its Mortgage Lenders’ Handbook contains specific requirements for solar panel roof leases in England and Wales. (Lenders Handbook)

Therefore, having solar panels does not automatically mean that a mortgage lender will refuse to lend.

The important question is:

What legal agreement is in place for the solar panels, and does it meet the mortgage lender’s requirements?

What is a solar panel roof lease?

A solar panel roof lease is a legal agreement under which a solar panel company obtains rights over part of a property’s roof.

The solar company may own the panels, while the homeowner owns the house.

The agreement can give the solar company rights to:

• Install the solar panels

• Access the roof

• Maintain the panels

• Repair or replace equipment

• Connect cables and associated equipment

• Generate electricity

• Keep the panels on the roof for the duration of the agreement

In some arrangements, the agreement can last for many years.

This means that the homeowner does not necessarily have complete control over the roof, even though they own the house.

That is what can make the arrangement important to a mortgage lender.

Why does a roof lease concern mortgage lenders?

A mortgage lender wants its mortgage to provide good and enforceable security over the property.

If the property is repossessed, the lender needs to be able to take possession of and sell the property without being unfairly restricted by another party’s rights.

A solar panel lease can potentially create complications if the lender has to enforce its mortgage.

For example, the lender may need to:

• Take possession of the property

• Sell the property

• Remove the solar panels

• Deal with the solar company

• Access the roof

• Terminate or override the lease

• Deal with the costs of removing the equipment

UK Finance’s guidance specifically recognises these concerns and sets out minimum requirements for lenders considering leases of roof space for photovoltaic solar panels. (Lenders Handbook)

Does having solar panels mean you can’t get a mortgage?

No.

This is an important distinction.

Having solar panels on your roof does not automatically make a property unmortgageable.

In England and Wales, UK Finance has established minimum requirements relating to leases of roof space for solar photovoltaic panels. Individual mortgage lenders can also have their own additional requirements. (Lenders Handbook)

If the solar panel lease meets the lender’s requirements, the lender may be prepared to lend.

However, if the lease does not meet those requirements, the lender may:

• Request additional information

• Require the lease to be varied

• Require a suitable mortgagee protection clause

• Ask for other documentation

• Decline to lend

The exact outcome depends on the lender and the terms of the solar panel agreement.

What is a leased solar panel system?

A leased solar panel system is one where the homeowner does not necessarily own the panels outright.

Instead, a solar company may have installed the equipment and retained ownership.

The homeowner may benefit from reduced electricity costs, while the solar company retains certain rights under the agreement.

This is different from a situation where the homeowner has purchased the solar panels outright.

If you are buying a property with solar panels, your conveyancer will need to establish which arrangement applies.

Why is the solar panel lease important when selling a house?

When selling a house with leased solar panels, the buyer’s mortgage lender will want to know about the arrangement.

The buyer’s conveyancer will normally investigate:

• Who owns the panels

• Whether there is a lease

• How long the lease lasts

• Whether the lease is registered

• What rights the solar company has

• Who is responsible for maintenance

• What happens if the property is sold

• Whether the agreement can be transferred

• Whether the buyer’s mortgage lender will accept it

The legal documentation is therefore an important part of solar panel conveyancing.

If the buyer’s mortgage lender is not satisfied with the arrangement, the transaction could be delayed or, in some circumstances, the lender may decide not to proceed.

Why can solar panels cause conveyancing delays?

A solar panel lease can cause delays if the necessary paperwork is missing or does not meet the buyer’s lender’s requirements.

For example, your solicitor may need to obtain:

• A copy of the solar panel lease

• Evidence that the lease is registered

• Details of the solar panel provider

• Installation certificates

• Guarantees

• Insurance information

• Confirmation of compliance with lender requirements

• A deed of variation if the existing lease needs changing

The buyer’s mortgage lender may then need to consider the documents.

This is why it is a good idea to tell your conveyancer about solar panels at the beginning of the property sale or purchase.

What do mortgage lenders look for in a solar panel lease?

Mortgage lenders can have specific requirements for solar panel leases.

The UK Finance Mortgage Lenders’ Handbook sets out minimum requirements for lenders considering consent to leases of roof space for solar photovoltaic panels. Individual lenders can impose additional requirements. (Lenders Handbook)

These requirements are designed to protect the lender’s security.

For example, lender requirements can address issues such as:

Mortgagee protection

The agreement may need to provide the mortgage lender with appropriate rights if it takes possession of the property.

Break clauses

Some lenders require the lease to contain a mortgagee break clause.

This can allow the lender to terminate the solar panel lease in certain circumstances following possession.

For example, Paragon’s current lender instructions require a valid mortgagee break clause and place responsibility for removing the panels and making good damage on the solar provider. (Lenders Handbook)

Removal of solar panels

Lenders may want the solar company to be responsible for the costs of removing the panels if removal becomes necessary.

Damage to the roof

The lease may need to address responsibility for damage caused by installing, maintaining or removing the equipment.

Rights of access

The solar company will normally need rights to access the property to maintain the panels.

The lender needs to ensure these rights do not adversely affect its security.

What happens if the solar panel lease doesn’t meet the lender’s requirements?

If the solar panel agreement does not meet the requirements of the buyer’s mortgage lender, there may still be options.

The lender could request that the agreement is varied.

A deed of variation may be used to amend the existing legal agreement so that it satisfies the lender’s requirements.

However, this depends on the solar panel provider agreeing to the changes and the lender being satisfied with the revised documentation.

Some lenders may instead decide that they are unwilling to lend.

For example, current lender instructions published through the UK Finance Mortgage Lenders’ Handbook show that some lenders require the lease to comply with UK Finance’s minimum requirements and may require variations where it does not. (Lenders Handbook)

Can you sell a house with leased solar panels?

Yes, you can sell a house with leased solar panels.

However, the solar panel agreement needs to be dealt with as part of the conveyancing process.

The buyer and their solicitor will need to understand the arrangement, and if the buyer is using a mortgage, their lender will need to be satisfied with the legal position.

The solar panel lease may need to be transferred to the buyer as part of the sale.

The exact procedure depends on the terms of the agreement.

Can a buyer get a mortgage on a house with solar panels?

Yes, many mortgage lenders will consider properties with solar panels.

The important distinction is between:

Solar panels owned by the homeowner

and

Solar panels subject to a lease in favour of a third-party solar company.

The second situation can require additional legal checks.

UK Finance specifically provides guidance for mortgage lenders dealing with solar panel roof leases, demonstrating that lending can be possible where the relevant requirements are satisfied. (Lenders Handbook)

What if I own the solar panels outright?

If the homeowner owns the solar panels outright and there is no lease of the roof space to a third party, the specific issue of a third-party roof lease may not arise.

However, your conveyancer may still need to establish:

• Who owns the equipment

• Whether there is finance attached to the panels

• Whether any restrictions are registered against the property

• Whether planning or building requirements were dealt with

• Whether installation certificates are available

• Whether warranties can be transferred

So, even where solar panels are owned outright, they should still be disclosed during the conveyancing process.

What if I am buying a house with leased solar panels?

If you are buying a property with solar panels, ask your conveyancer to establish the legal position as early as possible.

You should find out:

1. Who owns the solar panels?

2. Is there a lease over the roof space?

3. How long does the agreement have left to run?

4. Is the agreement registered at HM Land Registry?

5. Can the agreement be transferred to you?

6. Does your mortgage lender accept the lease?

7. Are there any outstanding payments?

8. Who is responsible for maintenance and repairs?

9. What happens if the panels need to be removed?

10. Are all relevant certificates and warranties available?

Your conveyancer can investigate these matters and raise any necessary enquiries.

What if I am selling a house with solar panels?

If you are selling a house with solar panels, locate your paperwork before putting the property on the market.

Try to find:

• The original solar panel agreement

• The roof-space lease

• Any transfer documents

• Installation certificates

• MCS documentation, where applicable

• Warranties

• Maintenance records

• Insurance information

• Details of the solar provider

• Any correspondence about the panels

Having these documents ready can help your conveyancer deal with enquiries more efficiently.

Can a mortgage lender force solar panels to be removed?

Not necessarily.

The fact that a property has solar panels does not automatically mean that the lender will require their removal.

The issue usually concerns the legal rights attached to the panels and the lender’s ability to enforce its security.

If a solar panel lease does not meet the lender’s requirements, the lender may request that the agreement is amended or may decide that it cannot lend.

The appropriate solution will depend on the specific lease and the lender’s requirements.

What is the UK Finance Lenders’ Handbook?

The UK Finance Mortgage Lenders’ Handbook contains instructions for conveyancers acting for mortgage lenders in residential property transactions.

The Handbook includes specific guidance relating to solar panels.

For England and Wales, solar panel requirements are dealt with under section 5.20. UK Finance confirms that individual lenders can have additional requirements beyond the minimum requirements. (Lenders Handbook)

This is important because not every mortgage lender has exactly the same requirements.

A solar panel lease that is acceptable to one lender may not necessarily be acceptable to another.

Why should you check your mortgage lender before buying?

If you are buying a property with leased solar panels, it is sensible to establish your lender’s position early.

This is particularly important if you have already received a mortgage offer.

Your conveyancer will need to report relevant issues to the lender in accordance with the lender’s instructions.

If the lender is unhappy with the solar panel lease, this could potentially affect your ability to complete the purchase.

Checking the position early can give you more time to resolve any problems.

What if the solar company has gone out of business?

This can make matters more complicated.

If a solar panel company no longer exists, you may need to establish who now owns the rights under the agreement.

The legal position can depend on whether the lease or rights were assigned to another company and what has been registered at HM Land Registry.

Your conveyancer can investigate the title and available documentation and advise on the next steps.

Are solar panels bad for property value?

Not necessarily.

Solar panels can provide benefits to homeowners, including the potential to generate electricity and reduce reliance on electricity purchased from the grid.

However, leased solar panels can be more complicated from a property transaction perspective.

A buyer may be concerned about:

• The length of the lease

• Transfer requirements

• Maintenance obligations

• Roof access rights

• The impact on mortgage lending

• Future removal costs

• The effect of the agreement on resale

Therefore, the issue is not simply whether a property has solar panels. It is about how the solar panels are owned and what legal agreement governs them.

How can you avoid problems with solar panels when buying or selling?

The best way to avoid problems is to deal with the solar panels early in the conveyancing process.

For sellers:

• Tell your conveyancer about the panels.

• Locate the original agreement.

• Find out who owns the panels.

• Provide all available certificates and warranties.

• Check whether the roof is subject to a registered lease.

• Provide your conveyancer with the solar provider’s details.

For buyers:

• Ask whether the panels are owned or leased.

• Give your conveyancer the solar agreement.

• Tell your mortgage broker and lender about the panels.

• Ask your conveyancer to confirm that the lease meets your lender’s requirements.

• Do not assume that because another lender accepted the lease, your lender will automatically do so.

Final Thoughts: Why Do Some Mortgage Lenders Refuse Houses with Solar Panels?

The key point is that mortgage lenders do not necessarily refuse to lend simply because a house has solar panels.

The potential problem is the legal arrangement behind the solar panels.

Where a solar company owns the panels and has a long-term lease over the property’s roof space, the mortgage lender needs to make sure that the lease does not negatively affect its security.

UK Finance has established minimum requirements for solar panel roof leases in England and Wales, while individual mortgage lenders can impose additional requirements. (Lenders Handbook)

If the agreement meets the lender’s requirements, the mortgage can potentially proceed. If it does not, the lender may require a variation to the agreement or, in some cases, may refuse to lend.

If you are buying or selling a house with leased solar panels, dealing with the solar panel agreement at the start of the conveyancing process can help avoid unnecessary delays.

This article provides general information about solar panels, roof leases and mortgage lending in England and Wales. It is not legal, mortgage or financial advice. Mortgage lenders have different lending criteria and requirements, which can change. If you are buying, selling or remortgaging a property with solar panels, speak to your conveyancer and mortgage lender about your specific circumstances.