Warm Homes Plan at the Budget: Government needs to galvanise demand for retrofit

In 2022, UK Finance released Net Zero Homes: Time for a Reset, which called on government to do far more to improve UK household energy efficiency and reduce carbon associated with home heating.

In her October Budget, Chancellor Rachel Reeves announced over £1bn for 2025, and a guarantee of an initial £3.4bn towards low-carbon heating and household energy efficiency over 2025-28.

This is a welcome continuation of the previous government’s financing package to support homeowners in lowering household emissions.

But so far, because of an absence of household demand, packages like these have failed to make a dent in the levels of carbon emitted by UK homes — one of the oldest housing stocks in Europe. For example, only 1 per cent of UK homes are heated by a heat pump, according to the Climate Change Committee’s latest progress report.

Banks and building societies are ready to support homeowners to make the green transition but have first-hand experience of this low demand. They have offered green homes loans for several years but see minimal uptake. For example, Nationwide recently highlighted “limited” take-up of its 0 per cent interest Green Additional Borrowing product, despite extensive promotion.

To get finance flowing at scale, we need a range of government interventions – not just public funding. The Net Zero Homes: Time for a Reset report sets out ten recommendations for government. All of these remain valid.

To complement its funding commitments, the government must now take steps to stimulate demand for green home improvements. Below, we highlight four key asks which will help deliver this, and which we submitted to ministers shortly after the General Election:

Communicate: Deliver a public-facing, government-led campaign involving all stakeholders — public and private — in the housing market to provide customer education. Previous efforts suffered from a lack of depth in the advice provided and minimal promotion.

Advise: Create a government-backed, independent Retrofit Advisory Service – a “one-stop shop” for free, impartial retrofitting advice.

Train: Train skilled retrofitters to green the housing stock through a new apprenticeship scheme and boost nascent supply chains.

Update: Implement improvements to the monitoring of home energy efficiency and emissions performance so that it is fit for purpose. This could include, for example, expediting the long-awaited reform of the EPC system, or offering new mechanisms for demonstrating the carbon performance of homes.

Further government funding is also needed. In 2022, we estimated that the cost of improving UK housing to its maximum energy efficiency potential would cost almost £300bn. Most of this will come from private sources, but public money is needed to stimulate private lending and investment and to support those households for whom private finance is not the answer.

The Budget stated that further funding for 2025-28 will be considered in Phase 2 of the Spending Review. This could include an increase in funding for the Boiler Upgrade Scheme and to grow heat pump manufacture in the UK. We will continue to call for increased government investment in this crucial area.

Area of expertise:

Mortgages Sustainability