Landlord Heat Pump Cost and Payback in 2026

What a heat pump costs before and after the grant

A typical air source heat pump costs around £12,000 before any grant, according to the Energy Saving Trust (page updated 23 September 2026). DESNZ reports a median installed cost of £12,908 for a Boiler Upgrade Scheme air-to-water heat pump in 2026 Q2, and that figure includes the value of the grant. Your own quote will differ with the size of the home, the radiators, the cylinder and the position of the outdoor unit.

The Boiler Upgrade Scheme pays £7,500 towards an air-to-water or ground source heat pump in a mains-gas home. The uplift to £9,000 applies only where oil or LPG heating is replaced and there is no mains gas connection. Landlords are eligible: the rules say you must own the property you are applying for, including one you rent out. The installer applies on your behalf.

VAT on installing heat pumps in homes is 0% until 31 March 2027, then 5% from 1 April 2027 (VAT Notice 708/6). Costs quoted today may therefore rise in April 2027 for that reason alone.

Item	Amount
Typical air source heat pump, before grant	£12,000
Boiler Upgrade Scheme grant	£7,500
Net cost to the landlord	£4,500

Worked example (modelled, not a real project)

This is an illustration built from published numbers, not a real property. It assumes a three-bedroom semi that needs 12,000kWh of heat a year. Flats and small terraces use much less, and large or solid-wall houses use more.

Inputs:

• Heat demand: 12,000kWh a year (assumption)
• Existing gas boiler efficiency: 90% (assumption)
• Gas: 7.97p/kWh, electricity: 26.32p/kWh (Ofgem price cap, 1 October to 31 December 2026)
• Heat pump efficiency (SCOP): 3.0, 3.5, and a stress case of 2.5 (assumptions)
• Net installed cost: £12,000 less £7,500 grant = £4,500
• Standing charges are left out, because they are paid either way unless gas is disconnected entirely

Formulas:

• Gas cost = (12,000 / 0.90) x £0.0797 = 13,333kWh x £0.0797 = £1,062.67
• Heat pump cost = (12,000 / SCOP) x £0.2632
• Annual saving = gas cost minus heat pump cost
• Simple payback = net cost / annual saving

SCOP	Electricity used	Heat pump cost	Annual saving	Payback on £4,500	Payback on £12,000
2.5	4,800kWh	£1,263.36	-£200.69	Never	Never
3.0	4,000kWh	£1,052.80	£9.87	456 years	1,216 years
3.5	3,429kWh	£902.40	£160.27	28.1 years	74.9 years

The last column shows the case where the home does not qualify for the grant. The numbers were computed with Python from the inputs above.

What the result tells you

Payback on energy savings alone is weak at current prices, and it can be negative. Electricity costs about 3.3 times as much per kWh as gas (26.32p against 7.97p). A heat pump has to deliver about 3.0 units of heat per unit of electricity (3.3 multiplied by the boiler’s 90% efficiency) just to break even on running cost against the gas boiler in this example. At a SCOP of 2.5 the heating bill in this example rises by about £201 a year.

Three things move the result:

• Efficiency in practice. Low flow temperatures, correctly sized emitters and good controls raise SCOP. A poor design lowers it.
• The price gap. The cap changes every quarter. Electricity carries no VAT from 1 October 2026 to 31 March 2027, while gas carries 5%, and that arrangement is dated.
• The heat demand. A well insulated home needs fewer kWh, so the absolute saving is smaller even if the percentage is the same.

There is also a split-incentive problem. In most rentals the tenant pays the energy bill, so a saving goes to the tenant and a rise lands on the tenant. The landlord carries the capital cost. Read heat pump running costs for tenants before deciding.

Payback against the planned EPC C cost cap

For a landlord, the more useful comparison is spend against the planned cap, not energy payback. Today the law is a minimum EPC E with a cost cap of £3,500 including VAT. The government response of 21 January 2026 plans EPC C by 1 October 2030 with a cap of £10,000 per property. Regulations have not been laid, so this is planned, not law.

Using the example:

• Gross spend of £12,000 is above a £10,000 cap
• Net spend after the grant of £4,500 is below it, with £5,500 of headroom
• Spend counts from 1 October 2025
• The government response says Boiler Upgrade Scheme funding will not count towards the cap, while other government scheme funding can. The regulations are not yet laid, so the final rule may differ and how a grant-funded heat pump is counted is not settled in law

If the cap is reached after eligible work, a 10-year exemption is planned. That makes a cheaper measure sequence, such as insulation and ventilation first, relevant to the decision. See the cost cap and exemptions page for the detail, and whether heat pumps improve an EPC rating, because a heat pump on its own may not lift a home to band C.

When a heat pump is not the right answer

A heat pump is the wrong first move when the home leaks heat. Loft, cavity and draught work usually cost far less and cut the demand a heat pump would need to meet. It is also a poor fit when:

• the boiler is working and the property is already EPC C or better
• there is no space for the outdoor unit within the planning limits
• the tenancy is short and the tenant’s bill is likely to rise
• the radiators are small and the pipework would need major change

In those cases a like-for-like replacement or a fabric-first plan may be the sensible answer. The hybrid versus air source comparison covers the middle option.

Next step

Put your own heat demand, tariff and quote into the heat pump landlord calculator. If you want installers to look at the property, send an enquiry on the quote page; relevant independent firms contact you, with no charge to you and no obligation.