New Research Shows UK Appetite for Innovative Financial Products to Enable Energy-Efficiency Upgrades and Reduce Energy Bills

GFI - GlobeScan - Property Linked Finance - Summary Report Sept2022

New GlobeScan research released by the Green Finance Institute reveals growing consumer appetite in the UK for a new financial product to enable energy-efficiency home upgrades.

Findings from Property Linked Finance: Rising Consumer Demand for Energy Efficiency and the Need for Financial Innovation, a survey in 2022, showed that nearly 9 in 10 people considered the energy-efficiency of their homes to be ‘important’ or ‘very important’, up from 83% in previous data collection before the energy price crisis. However, only 20% of individuals surveyed this year were likely or very likely to use existing types of finance to do upgrade works, and around 50% were unlikely or very unlikely. The data points to heightened demand from consumers for product development to provide the funding homeowners need for upgrades.

In direct response to this, the Green Finance Institute is developing a new financial instrument tailored to homeowners’ needs: Property Linked Finance (PLF). PACE, a similar finance mechanism for home upgrades in the United States, has to date mobilised over $9.8 billion of financing towards energy efficiency improvements across 323,000 homes and created 141,000 skilled jobs.

What is Property Linked Finance?

Property Linked Finance will support homeowners by funding up to 100% of the upfront costs of energy efficiency improvements, with the unique characteristic that the finance is ‘linked’ to the property, rather than the property owner.

This directly addresses the “payback period barrier” whereby, although timescales to recoup savings are shortening due to increasing energy costs, homeowners are deterred from retrofitting as the energy bill savings over their expected time living in the property are not sufficient to make it financially worthwhile. PLF is also secured finance, which enables much longer repayment periods and lower individual repayments.

Why is Property Linked Finance an innovative solution?

The introduction of this product could offer a significant opportunity for financial institutions seeking to support the net-zero transition, especially given the necessary pipeline growth in UK’s retrofitting market to 2050. The concept, even though new, is attractive to consumers: 63% of respondents were either likely to consider or were neutral on using a PLF scheme to finance their energy efficiency works.

The GFI repeated the study with GlobeScan in 2022 following the rise in UK energy bills; it found that while interest in traditional finance had slightly declined, the attractiveness of PLF has remained constant: over half the respondents stated that current and future socio-economic pressures would make them more likely to consider using Property Linked Finance.

There are estimated to be 15 million homes in the UK with an EPC rating of D or lower, and the investment needed to upgrade these to energy efficient standards, addressing fuel poverty and lowering fossil fuel emissions to meet Paris-agreement levels, is estimated at £250 billion. While grant support will be needed to help those with low household incomes, mechanisms that allow homeowners to access private capital to finance the retrofit of their homes will be transformational, and the development of these by the private sector is clearly essential.

Emma Harvey, Programme Director, Green Finance Institute, said: “We’re pleased to be sharing the findings of new research published today, which clearly demonstrate the need to develop new solutions to help homeowners access the funding needed for energy efficiency upgrades. At a crucial time, given the pressures of energy security, the cost-of-living crisis and net zero, which all require solutions, Property Linked Finance provides an innovative and scalable financial mechanism which can mobilise capital towards retrofitting upgrades. We look forward to developing PLF as a solution to decarbonise homes and improve energy efficiency, whilst delivering real progress on net zero.”

Caroline Holme, Senior Director, GlobeScan, said: “It is encouraging to see in the research that, despite Property Linked Finance being a new concept in the UK, there are surprisingly high levels of interest among consumers. The underlying concern around costs of living and energy bills are strengthening appetite to improve the energy efficiency of homes, and the research suggests that PLF could help some homeowners feel more confident to use finance to take action.”