For well-insulated homes with underfloor heating or large radiators, heat pumps are now cost-competitive with oil, especially with the £7,500 Boiler Upgrade Scheme grant. For older, draughty homes, the upfront case for switching is weak. Focus on insulation first.
Upfront costs
| Oil boiler replacement | Air source heat pump | Ground source heat pump | |
|---|---|---|---|
| System cost | £2,500–£4,500 | £8,000–£14,000 | £18,000–£30,000 |
| BUS grant | £0 | –£7,500 | –£7,500 |
| Net cost after grant | £2,500–£4,500 | £500–£6,500 | £10,500–£22,500 |
| Radiator upgrades needed? | Usually no | Often yes (£2–5k) | Often yes (£2–5k) |
| Typical total installed | £3,000–£5,500 | £3,000–£12,000 | £13,000–£28,000 |
Costs as of 2026. BUS grant requires eligible property and OFGEM-approved installer.
Running costs
Running cost comparisons depend heavily on current energy prices and the heat pump's efficiency (measured as its Coefficient of Performance, or COP). A modern air source heat pump with a COP of 3 produces 3kWh of heat for every 1kWh of electricity consumed.
| Oil boiler | Heat pump (COP 3) | |
|---|---|---|
| Fuel cost (2026) | ~110p/L kerosene | ~24p/kWh electricity |
| Cost per kWh heat | ~12.7p | ~8p |
| Annual cost (15,000 kWh home) | ~£1,905 | ~£1,200 |
| Annual saving vs oil | — | ~£700/year |
| Simple payback on net cost | — | 4–17 years |
Heat pumps depend on electricity, which is currently more expensive per unit than it was historically relative to heating oil. If electricity prices rise faster than oil prices, the running cost advantage narrows. Conversely, if oil prices spike (as in early 2026), heat pumps look significantly more attractive.
Is your home suitable for a heat pump?
Heat pumps work best in homes that can be heated efficiently at lower flow temperatures (typically 35–45°C, versus 65–75°C for an oil boiler). To achieve comfortable temperatures at these lower flow temperatures, you typically need:
- Good insulation: loft insulation of at least 100mm, ideally 270mm; cavity or solid wall insulation where possible
- Larger radiators, or underfloor heating, which is ideal for heat pumps
- A reasonably airtight property: very draughty older homes lose heat too quickly for low-temperature heating to cope
- Adequate outdoor space: air source units need clearance around them; ground source requires land for the ground loop
If your home doesn't currently meet these criteria, the honest advice is to improve insulation first, and continue with oil heating in the meantime. A well-insulated home heated by a heat pump is genuinely cheaper to run; a poorly insulated home with a heat pump is expensive and uncomfortable.
When oil boiler replacement makes more sense
- Your existing boiler is working fine and is less than 10 years old: no urgency to switch
- Your home is poorly insulated and you can't afford both insulation and a heat pump in the same budget
- Your property is listed or has other restrictions on external installations
- You have a large property with high heat demand where heat pump sizing becomes complex
The HVO option. A middle path
Hydrotreated Vegetable Oil (HVO) is a renewable fuel that works as a drop-in replacement for kerosene in most modern oil boilers with no modifications required. It reduces carbon emissions by up to 90% versus fossil kerosene, at a price premium of roughly 15–25% above regular heating oil.
For households not ready for the disruption or cost of heat pump installation, switching to HVO offers a meaningful carbon reduction while retaining the simplicity of oil heating. See our kerosene vs HVO guide for more detail.
Whether you stay on oil or switch, compare to get the best deal while you're deciding.
Summary: which should you choose?
Choose a heat pump if: your home is well-insulated (or you can insulate it), you have underfloor heating or can upgrade radiators, you qualify for the BUS grant, and you're planning a long-term stay in the property.
Stick with oil if: your boiler is relatively new, your home needs significant insulation work first, your budget doesn't stretch to both, or you're planning to sell.
Consider HVO if: you want to reduce your carbon footprint now without disruption or major upfront investment.