Financing Retrofit - Roundtable - National Retrofit Hub

Working Group 4 – Finance, is committed to breaking down barriers and creating better connections between banks & building societies and those delivering retrofit projects.

On 25th October 2023 we co-hosted a roundtable discussion with the Green Finance Institute.

You can read the write up from the roundtable below or view the PDF here.

ATTENDEES:
Emma Harvey-Smith: Green Finance Institute (Chair)
Rachael Owens: Co-Director National Retrofit Hub (Co-director)
Sara Edmonds: Co-Director National Retrofit Hub (Co-director)
Jonathan Atkinson: People Powered Retrofit, Great Manchester
Rafe Bertram: Enfield Council, London
Chris Brown: Climatise
Heather Buchanan: Bankers for Net Zero
Tonia Clark: Birmingham City Council 
Elliot Cyriax: Bankers for Net Zero
Matt Faretti: Green Finance Institute
Dan Godsall: Barclays, Sustainable Finance Team (Delivery Director)
Steph Landymore: Ecology Building Society 
Tim Lunel: Low Carbon Hub, Cosy Home Oxfordshire, Low-interest loan scheme 
Chris Obrian: Nationwide
Ian Preston: Centre for Sustainable Energy (Director)
Amelia Williams: Nationwide
Cerys Williams: Sero

SUMMARY

The roundtable heard presentations from leading banks on uptake of their green products, their plans for the future and from delivery organisations as to what types of finance they are accessing and what is needed by their clients. The meeting aimed to explore the perceived and real barriers to retrofitting and uptake of green finance, with the ambition to ‘myth bust’ and foster greater collaboration. The meeting asked banks and retrofitters what they need of each other in order to accelerate retrofitting.

CURRENT GREEN FINANCING MODELS AND WHO IS USING THEM:

Barclays cash back incentive for measures installed by Trustmark accredited installers
0% interest loan of up to £15k for 5 years offered by Nationwide

Take up is largely by those who are “able to pay” and Barclays research showed that many customers taking up the incentive are using their savings to pay for measures; were already planning to carry out retrofit; or, were incentivised to carry out retrofit more quickly as a result of green incentive offered – a smaller number of customers were not previously considering retrofit. Nationwide is currently researching the motivations of customers and barriers to take up of their green financial products and sees its role as one of testing and learning from schemes offered.

WHAT DOES THE RETROFIT COMMUNITY NEED FROM FINANCIERS AND VICE VERSA?

Training and upskilling of mortgage brokers will be critical to drive awareness of schemes since the majority of mortgages are originated via mortgage brokers.
Financiers need greater confidence over the ways they can limit their liability and when partnering with delivery organisations but recognise the value of providing a simple customer journey with an end-to-end offer.
Banks as a trusted source of information can play a key role in educating customers and pilots such as Barclays and British Gas Net Zero mock up house in Plymouth offer excellent opportunities for testing and learning. Those working in financial services need to be equipped with knowledge on retrofitting, so they can design solutions that help customers easily access the finance they need.
Retrofitters presented would like to see a consistent offer across banks and some representatives believe that the 0%/ low interest finance is the right product to motivate customers. In addition, the loan amount should be increased to £25k.
The sector should avoid the use of basic EPC derived cost-saving calculators to drive interest in retrofitting as they overstate financial savings and do not get across the wider benefits such as increased comfort and property value. They can create low quality leads that are a drain on resources for one stop shops.

OPPORTUNITIES AND OBSERVATIONS:

The discussion highlighted a number of issues and opportunities with implications for wide scale delivery of retrofit:

Currently it is hard for customers to navigate what to do and how to do it and therefore the market is largely ”early adopters” who have a high level of awareness and motivation. The experience of People Powered Retrofit has been that a wide range of services in one place is required to enable take up from initial advice, to design, procurement and delivery through local contractors. Previously there was greater capacity in England for provision of impartial advice though the network of Energy Saving Trust Advice Centres (ESTACs). Who has the trust equity in England to provide this role now?
Enabling uptake requires an understanding of trigger points and life cycle of a household, for example, once children have left home and financial pressures have eased, when other renovations taking place.
Large contractors delivering social housing schemes are unlikely to service the able-to-pay market. This will be delivered by smaller contractors, and there needs to be greater innovation in upskilling these contractors such as the Manchester B4Box scheme.
Local Authorities could play a strategic role to bring together parties (such as skills and training providers, local SMEs, community groups, local finance) needed to enable and support the development of one-stop shops; to ensure that planning requirements do not get in the way of retrofitting and use their own housing stock as a test bed for innovation in technologies.

In summary, financial provider’s experience to date has generally been with early adopters, typically in a strong financial position, with high level of awareness and confidence to carry out works. Existing financial products offered by banks are the right types of product however, improving the customer journey and nationwide infrastructure for driving awareness raising and high-quality lead generation is needed. The discussion also highlighted that the processes, incentives and services demonstrated so far for the able to pay sector may differ from those required to enable mainstream take up.

List of all green mortgages offered by lenders is available at GFI website.

FULL WRITE UP

Dan Godsall, Barclays – Delivery director for sustainable finance scheme, drives delivery of new solutions.

Barclays has been testing the role of green finance products in driving behaviour change:

Offers a green mortgage (reduced interest rate) for energy efficient new-build properties
Green home rewards – existing mortgage customers making home improvement (such as insulation, solar, heat pumps), and who use Trustmark registered installer, can claim back up to £2k cash back afterwards.

Research into uptake of these schemes has shown that some customers were going to do the work anyway but welcome the cash bonus, others were prompted to act more quickly and in a smaller number of cases people carried out home improvements as a direct result of the incentive offered. Typically, customers using green finance products were “able to pay”, and using their savings to do the work, rather than taking out a loan. Offering these incentives is not scalable to the mass market and Barclays are looking at what other ways they can promote uptake, by working more closely with the retrofit community to make the process easier for customers.

Amelia Williams – Product Manager, Nationwide

Nationwide wants to test, learn and experiment to find what customers need. Current offers:

Cashback when purchasing higher rated EPC property
Zero% interest green additional borrowing (launched this year), fixed for up to 5 years for up to £15,000 (average loan £12,000). Loans can be used for a range of measures, most popular are boiler upgrades, solar panels, double/triple glazed windows, also heat pumps and insulation.

Previous partnership with Make My House Green – a pilot scheme for 3000 households offering solar panels, however, one issue with this scheme is how liable the society becomes as financer, is it scalable?

Currently seeing relatively low uptake of 0% mortgage and this is mostly accessed by those who have high level of equity or existing savings, 70% of applications come from those with a Loan to Value ratio of 60% or below and opt for 5-year loan period. There is also a stronger take up in South of England. Their research will identify the drivers and barriers for uptake of these products among their customers.

Nationwide believes that the focus needs to be on educating consumers rather than developing further products and has a partnership with Energy Saving Trust to create free action plans customers so that they can understand the retrofit measures available.

DISCUSSION

There are only so many levers that can be pulled by lenders. Are alternative finance models viable such as property linked finance, heat as a service? What is the role of major banks and building societies in incentivising take up.

Nationwide are open minded to partnerships but need to consider risks balanced with benefits also the balance of wider business and customer priorities. Any partnerships would need to add value to retrofit journey to make this easier for customers.
Barclays are tracking policy change, hope to see changes that incentivise banks further. A market- wide transformation would be needed to enable property linked finance; (it could not just lead by one bank). A major issue to be addressed is consumer mistrust, for example, of heat pumps and negative press coverage, e.g., an installer saying, “I’m taking out more heat pumps than I’m putting in because they don’t work”. Also need more consumer education, at their Plymouth branch they are trialling working with British Gas Net Zero to show a mock-up of house with everything you can install.
Green Finance Institute are training mortgage brokers, to increase consumer awareness.
Cosy Home Oxfordshire – believes 0% interest loan is the right product to incentivise customers but would like to see loan amount increased to £25k (typical price of a package of measures).
Nationwide 0% interest loan is targeted to existing mortgage holders; they need to have had the mortgage for more than 6 months and is classed as additional borrowing on a mortgage. A One Stop Shop offering advice and resources would help to increase take up of measures.
Retrofit Kentish Town. People think there is no funding, but there is a lot of funding out there!
The GFI website offers a complete list of green mortgage offers from banks.
CSE – up until 2010, there was a national network of energy advice services (52 ESTACs) this then became a central phone number. This offered a home energy advice check and impartial advice. Greater Manchester offers Every Home Counts and there are other similar services, however, we need something similar now, a centralised place that could bring together impartial advice.
Ecology Building Society – offers a discounted mortgage rate, which increases progressively with the energy efficiency of the home. There needs to be a standard approach to calculating energy savings by designers and a standard way of thinking about your mortgage as well as your energy bills.

Jonathan Atkinson (People Powered Retrofit Greater Manchester)

Has 200 clients as part of their Green Homes Finance Accelerator project, offering 0% interest loans and a One Stop Shop, providing a broad range of services from advice, to procurement and delivery though existing local contractors. Community share issue in 2021 and began trade in 2022. Clients are early adopters, motivated by climate and comfort and come with savings £40-50k average.

Working with Credit Unions to offer loans to lower socio economic groups represented who were already commissioning improvement works can there was a clear driver to add energy efficiency to these works. hese clients didn’t know where to start but were interested. There is a need to upskill existing contractors already working in homes. Sharing learning from Credit Union in Ireland.

To convert customer leads, EPC data is too generic and overstates the financial savings available. PPR Retrofit Advisor has a 20 min conversation with the person and comes to the property. Simple calculators can generate a lot of leads that take a lot of staff time and don’t result in take up of measures. PPR is now supplying back-end services to other geographic areas to support their operations.

So far PPR has been working with early adopters who may need additional finance to supplement their savings for measures (2-3 per cent). What are the tools, processes and propositions needed for the mass market? These may be different – is this segment currently viable?

Ian Preston (Centre for Sustainable Energy)

Independent charity with Household Energy Services team working across fuel poverty services and with “able to pay”. Delivery of DESNEZ project Future Proof and Green Home Finance Accelerator. Supporting other organisations to skill up. A key issue is that procurement process pushes down prices and this leads to cuts in labour and therefore quality – a race to the bottom.

Bristol Heat Pump ready project offers a heat loss survey, provides accurate estimate of size of heat pump needed. Some studies show only 15% Heat Pumps are the right size (typically they are too big). There is a need for better data to inform customers. One-stop shops, such as Retrofit West, uses a Parity Planner tool, a customer can then ring someone and be referred for a discounted home survey. The are an insufficient number of contractors available to do the work in this area. Tier 1 contractors delivering Hugs wont deliver for the able to pay sector, we need innovative solutions such as B4Box in Manchester to upskill and create the capacity among smaller contractors, provide high quality well trained workforce.

DISCUSSION

Quality and price of works will be crucial in the unsecured lending space.
How is information passed on to the next person when you sell your home – need for building passports. GFI published building renovation passport guidance in 2021 here.
Heat Geek training for engineers is better solution for heat pump installers than the MCS calculator but still a guess.
One difficulty preventing scale of uptake is contractors working in silos. Local Authorities working in partnership with One Stop Shops such as Oxford City Council and County Council working with Cosy Home Oxfordshire can help to prevent this. How can contractors increasingly work together so that, for example rather than installing a large heat pump the resident can install insulation alongside this.
In relation to retrofit there is a system in transition, all the parts need to move forward together. We need to make the process easily available to communities and LAs. Innovation is needed not in new ideas and schemes but rather to make it integrated and easy for people to access, otherwise we won’t be able to get to scale.

WHAT DOES THE RETROFIT COMMUNITY NEED FROM FINANCIERS AND VICE VERSA?

A consistent 0% / low interest offer across the finance community together with an understanding of retrofit so that a resident who may have been planning to install 2 measures can get the extra finance easily and cheaply to install all 4 measures recommended. If the cost of finance is 5 or 7 per cent, they won’t do it.
An offer suitable for those without savings or high loan to equity value. So far the market has served early adopters – what is needed for the wider market?
How can we make it easier for banks to work in partnership with retrofitters to provide an end-to-end service. Banks want to deliver good value to customers and need to limit their liability and risk. Evidence is needed to back up claims made by retrofitters. Insurance and appropriate qualifications can mitigate these risks.
Regulations can be limiting for banks, for example, the need to demonstrate they are being fair with products offered to all customers rather than targeting specific customers.
PPR – would like to develop more partnerships to bring the right clients who need the finance.

THE ROLE OF LOCAL AUTHORITIES

Birmingham wants to make sure they are not getting in the way of retrofit, for example in relation to External Wall Insulation. They have developed a partnership with Retrofit Academy and want to make retrofit an aspirational career starting from schools.
Local authorities can also play a role in trialling new technologies in new homes. Working with CSE to identify heat spots and aggregate demand.
Enfield – the first priority of local authorities is to retrofit their own homes. Enfield are carrying out a trial with Energiesprong for 10-100 houses plus grant funded schemes. Consideration for the Local Authority spheres of influence. Most LAs would be very interested in working collaboratively with a local home grown One Stop Shop. and sign-post residents this.