A broader, diverse range of options is what consumers need to improve the sustainability of their homes, it was said at the Mortgage Solutions Scottish Green Home Finance Summit.
The inaugural event took place this week and included a discussion on property-linked finance (PLF).
A speaker explained this as long-term affordable finance that is linked to a property rather than the property owner.
It can be used to fund 100% of the upfront costs of a project to improve the environmental performance of a home.
The Green Finance Institute (GFI) is working with the Scottish government on its development and launched a greenprint last year.
It has been hailed as a new solution in the UK market and has unique features, such as running with the land, which is when the finance is attached to a property and remains in place after the sale of an asset. It is also non-accelerating, meaning in the event of non-payment, the PLF lender can only recover the missed payments at the time, not the total outstanding balance.
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The speaker said this overcame the payback barrier and instances where owners of a property might be deterred from making improvements if they plan to move in the near to medium term and feel they will not benefit from the energy savings to offset the costs.
PLF is expected to broaden the range of options open to consumers and has been partially modelled on the financial tool Property Assessed Clean Energy (PACE), which is widely used in the US.
More radical ideas
One speaker on the panel said installing multiple retrofit measures at the same time would require larger loan sizes, so PLFs could be a great way of “getting over upfront costs” and stopping people from taking a piecemeal approach.
“If you do all of these measures together as an integrated approach, you can actually get far more energy-efficiency savings, which means your bills are lower,” they added.
Another speaker discussed being involved in the early stages of PLF development in the UK and said research it conducted with consumers showed homeowners did want to make sustainability improvements, but the main barrier was cost.
The speaker said the scale of the transition needed for people to upgrade their homes at the required pace suggested “some more radical thinking is needed, both in the finance sector but also in the politic[al] space. I think this solution has the potential to bring together these two pieces and to bring an appealing solution for people”.
They added: “I think home energy and heating can sometimes be a bit boring, so the solutions need to be appealing, both in terms of the technology but also the finance solutions.”
They added that PLF could be a “compelling” option.
A broader choice of finance
Another speaker said suitable financial options needed to be there for everyone and said existing solutions worked well for some homeowners, but there was still a gap in the market for something that “addresses some of the challenges… around the upfront costs and the payback period”.
They said unsecured lending played an important role in helping people finance renovations, but the typical term lengths and values people could borrow at meant there was still an additional monthly cost that not everyone would be able to afford.
“You need those options such as property-linked finance, which could be a possible solution to help unlock that, as it’s longer term and it enables for repayments to be more aligned with the energy savings, which is really the way to unlock this for the mass market,” they added.
Someone on the panel said consumer research they carried out indicated that because landlords had “more ambitious” minimum energy-efficiency standards to meet, particularly in Scotland, they were open to the concept of PLF. However, they said whether the product would be readily available in time for the deadline of 2028 for landlords was a factor to consider.
Homeowners in Scotland have until 2033 to bring their properties up to a minimum energy-efficiency standard.
Another said it was interesting to see focus groups get their heads around what PLF was, as it was “an unusual concept in the UK market”. They said homeowners saw the benefit of the product design and others did not even see it as finance, because while it would be linked to their property, it stays with the property.
“They saw it in that slightly different category, which I think could overcome some of the perceptions [people have],” the speaker said.
A central role in unlocking sustainable solutions
Ryan Jude, programme director at the Green Finance Institute, said of the event: “Following a key recommendation from the Scottish government’s Green Heat Finance Taskforce to raise awareness of the growing green home finance market, the Green Finance Institute is proud to collaborate with the Scottish government to deliver Scotland’s inaugural Green Home Finance Summit. This event is an important step for industry, policymakers and financial institutions to collaborate and accelerate the delivery of a resilient, energy-independent, and fair net zero future in Scotland’s built environment.
“The finance industry has a central role to play in unlocking sustainable housing solutions at scale. The summit provides an opportunity to foster collaboration between lenders, policymakers, and industry leaders, both domestically and internationally. By working closely with government and key stakeholders, we aim to exchange insights, shape policy, scale green home finance in Scotland and drive the market forward – ensuring that green home finance becomes a core pillar of Scotland’s net zero transition.”