The Green Finance Institute is developing a new financial product to meet consumer demand for loans to fund energy-efficient retrofits.
Findings from the 2022 survey Property Linked Finance: rising consumer demand for energy efficiency and the need for financial innovation, found that nearly 9 in 10 people considered the energy efficiency of their homes to be ‘important’ or ‘very important’, which is up from 83% 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.
Encouraged by the survey’s indication of consumer appetite, which is reflected in the growth of similar products in several other countries, the Green Finance Institute will now explore the viable delivery models for Property Linked Finance, and assess how a local pilot scheme can be launched in the near future.
The GFI’s partnership with the Greater Manchester Combined Authority, will include Property Linked Finance in its portfolio of pilot solutions to enable homeowners and landlords in the area to finance energy upgrades.
Establishing PLF in the UK will require co-ordinated collaboration across the finance, legal, installer and property sectors, as well as local, devolved and central governments. To facilitate this collaboration and further develop the product framework, the Green Finance Institute plans to convene a small group of experts to rapidly develop a prototype model of PLF. More information and data from its research will be made available in a technical annex, to be published shortly.
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.”
Pete Gladwell, Group Social Impact & Investment Director, Legal & General, said, “We are delighted to see the Green Finance Institute’s increased focus on product innovation. As institutional investors, with people-centred values and a long-term perspective, we realise both the global scale of the challenge and the tangible, real-life solutions necessary to help property owners upgrade their homes to future-fit buildings that are sustainable, resilient and comfortable. Property Linked Finance has the potential to be one of these solutions, with huge potential and replicable scale, and the expanding role of PACE structures could support its growth.”
