Can Lloyds & Octopus' New Initiative Drive Heat Pump Uptake?

Lloyds Bank has launched a market-first mortgage incentive offering new homebuyers and re-mortgage customers a free heat pump installation.

The scheme, which is set to run until 24 November 2025, will see the bank cover standard installation costs above government grants for eligible customers taking out mortgages on properties rated EPC C or D in England.

Lloyds is teaming up with Octopus Energy, the UK's single largest energy provider, for this project. Octopus, which positions sustainability as central to its offering, will supply and fit any air-source heat pumps that are redeemed as part of the initiative.

Who is eligible to receive a free heat pump from Lloyds and Octopus?

In order to qualify for a free heat pump customers must either already have a current account with Lloyds or they will need to open one. They must also be eligible for the government's Boiler Upgrade Scheme and claim their heat pump within a year of completing on their mortgage.

Currently, the UK's Boiler Upgrade Scheme offers citizens a grant of £7,500 (US$10,078) to go towards the purchase of either air-source or ground-source heat pumps.

After some initially disappointing results the size of the grant was raised by 50% in 2023 to encourage more UK residents to opt for sustainable space heating solutions.

Based on Octopus pricing, a three-bedroom home installation costs approximately £11,400, reduced to £3,900 after the £7,500 government grant.

Lloyds is set to cover the remaining £3,900 for standard installations.

The environmental and financial goals of the heat pump initiative

On the face of things, the main objectives of the project are twofold. Firstly, this is about national decarbonisation, with space heating contributing to around one-third of all emissions in Britain, according to the UK Government.

"This is a market-first offer for our customers that directly supports our efforts to help reduce the carbon impact of British homes," says Kate Townson, Relationship Mortgages Director at Lloyds Bank.

"Beyond increasing access to low-carbon heating, it will also help us understand customer sentiment around heat pumps and retrofitting at a deeper level."

Secondly, this is about Lloyds increasing its outreach and market share.

As one of the nation's major mortgage brokers, the bank's offering stands to draw a great deal of interest of new homeowners that are looking to save on their domestic infrastructure and future bills, as well as those that might be more inclined towards sustainable living.

Should the initiative gain momentum, this will also be of huge benefit to Octopus in the long run. As the UK's prime sustainable energy provider, the London-based firm can offer customers the best prices on heat pumps, which stands it in good stead for the energy transition ahead.

Rebecca Dibb-Simkin, Chief Product and Marketing Officer at Octopus Energy, sees the offer as potentially transformative.

"Heat pumps are quietly transformative - our customers tell us they're cosy, efficient and reliable, and now for some Lloyds mortgage customers they can be completely free," she says.

"It's a no-brainer of a deal – what better way to welcome your new home than with gas-free heat and no upfront cost?"

Do British customers actually want heat pumps?

This year, a piece of research that was commissioned by Lloyds found that 60% of recent heat pump adopters reported that their homes that were warmer in winter and were generally more comfortable.

Three-quarters of all the respondents said they felt as though heat pumps would increase the value of their property, aligning with bank data showing energy-efficient homes command a premium.

Elsewhere, figures from the government suggest that 90% of UK homes already have sufficient insulation to run heat pumps effectively, which has been a concern of heat pump sceptics in the past.

The bank's ongoing partnership with Octopus has already facilitated more than 5,000 energy-efficient home improvements including heat pumps, solar panels, battery storage and insulation.

Why the UK is missing its retrofitting targets

The UK's Heat Pump Association reports that 98,469 hydronic heat pumps were sold in the UK in 2024, which represents a 63% increase from 2023.

Yet, despite all this growth, the pace remains well below the government's target of 600,000 annual installations by 2028.

The certification body MCS recorded 15,758 certified heat pump installations in the first quarter of 2025, setting a record for the first quarter.

The UK had nearly 260,000 total certified heat pump installations by late 2024, much of which can be attributed to the rise in the grant size offered by the Boiler Upgrade Scheme.

Should Lloyds and Octopus' short scheme yield impressive results, it will give the government all the proof it needs with regards to the appetite British citizens have for heat pumps, which could in turn lead to more financial incentives in the coming years.

The current state of the global heat pump market

The announcement from Lloyds and Octopus comes at a time when major manufacturers are heavily investing in their capacity to produce heat pumps at scale.

Carrier Corporation, for example, completed the US Department of Energy's Cold Climate Heat Pump Challenge and began Tennessee production in September 2024.

France has committed to domestically producing a million heat pumps annually as part of its national decarbonisation efforts.

Whether financial incentives like Lloyds' offer can help consumers overcome hesitancy, or whether installation bottlenecks can subside, all remains to be seen.

With the UK racing to meet its climate commitments, there is hope that the scheme will move the dial and prove to be an invaluable case study.

As Kate says: "This is a valuable opportunity to deepen our understanding of the broader challenges customers face – beyond financial considerations – as they move to more sustainable energy solutions."