Overcoming the Challenges of Financing Retrofit in the UK: A Pathway to Net Zero
Rachael Owens
Wales and the UK face a significant challenge in ramping up retrofit delivery to meet net zero, fuel poverty and health goals. Currently, across the UK, we retrofit around 250,000 homes per year, but to meet our targets, we need to increase this to 1.5 million homes annually by 2035. This sixfold increase is critical to achieving a total of 11.8 million retrofits in England, 1 million in Wales, 1.2 million in Scotland and 300,000 in Northern Ireland, and that’s just if we are targeting EPC C for all homes. Many in the industry say we need to go much further. However, the current funding landscape and finance availability present several barriers to this scale-up.
The overall funding currently available is insufficient to address the needs of the 6 million households in the UK living in fuel poverty. For Wales, this is 14% of all households, and retrofitting all fuel-poor homes in Wales is estimated to cost over £4.8 billion.
Additionally, existing funding options often fall short of covering the full cost of essential retrofit measures and enabling works. A combination of dependence on grants and the unpredictable cycles of grant funding results in volatile workflows for both customers and the supply chain. The complex administrative hurdles and eligibility requirements of grant-funded schemes make the process even more challenging and complex.
Current programs are also too narrow in scope, failing to account for rising costs and unexpected expenses. The overall funding pool is simply too small to effectively address fuel poverty and retrofit all social housing. Competitive bidding and tight spending deadlines create a false sense of scarcity, adding unnecessary pressures that can affect the delivery and potentially the quality of retrofits. Most funding and financing options are also limited by tenure or income, making it difficult to implement broader, place-based approaches and scale up retrofit.
To break down these barriers, we need to scale up innovative solutions like low-cost loans, heat-as-a-service models, and tax incentives. Integrated financial models and specialized mortgage products are also essential to support this growth. For more retrofit projects to succeed, both the retrofit and finance sectors need to collaborate closely. For example, training mortgage brokers to raise awareness about available schemes is crucial since they handle the majority of mortgage applications. Financiers also need more confidence in managing liability when working with retrofit partners. Additionally, the finance sector should be equipped to design user-friendly solutions, making it easy for customers to access the funds they need. Banks, trusted by customers, can play a major role in educating them on these options. Initiatives like the Barclays-British Gas Net Zero mock-up home in Plymouth provide valuable testing grounds to learn and refine these approaches.
Establishing a consistent retrofit financing offer across banks, with an increased loan cap of £25,000, should also be a priority. Access to affordable, low-interest financing remains one of the strongest motivators for customers looking to upgrade their homes.
In order to deliver at scale, local authorities have a unique opportunity to lead the way in retrofitting by connecting skills and training providers, local businesses, community groups, and financial institutions to create one-stop shops for retrofitting services. These hubs would help streamline planning requirements so they don’t slow down retrofitting projects while also turning local housing stock into a testing ground for new technologies.
Another key area for improvement is the reform of the Energy Performance Certificate (EPC) system. Our review of industry insights and sector feedback has highlighted several issues with the current EPC setup. The current EPC was designed as a cost metric to show how expensive or cheap a home is to heat, leaving out crucial information on energy consumption and carbon emissions. Therefore, it does little to promote heat decarbonization. Additionally, the data in EPCs is often unreliable due to weak data validity, flawed assumptions, and inaccurate modelling.
EPCs also miss the chance to engage homeowners with their home’s energy performance. The reports are not user-friendly, and the recommendations are often vague or difficult to act on. Since the finance industry relies on EPCs to report and evaluate the carbon footprint of their portfolios, more accurate and dependable carbon metrics would help unlock green finance for building upgrades.
Making EPCs easier for consumers to understand—with clear signposting, helpful links, and straightforward next steps—would improve engagement significantly. Our network also believes EPCs should consider health and well-being factors, providing insights into how a home’s environment might impact its occupants. This would include recommendations for better indoor air quality, improved thermal comfort, and strategies to reduce mould risk.
Recently, the National Retrofit Hub has been exploring how to strengthen connections between finance and retrofit delivery. At a roundtable, we posed the question, ‘Can integrating finance directly into retrofit delivery for the able-to-pay sector drive better results and increase uptake?’ While early adopters have been essential for testing existing financial products, scaling up retrofits for a wider market means addressing a variety of unique needs. We heard insights from the UK government’s Green Home’s Finance Accelerator projects, including Parity Projects, People Powered Retrofit, Trustmark, and Lendology, all of which are developing innovative models that bring financing into retrofit delivery.
To realise the full benefits of retrofit—improved health, energy security, climate resilience, and cost savings—we need to leverage these advantages to generate investment. Initiatives like ‘net zero neighbourhoods’ can demonstrate the value of a comprehensive approach to retrofitting at scale, showing its transformative impact on communities and the economy.
The road to scaling up retrofit is challenging, but we can overcome these barriers by fostering collaboration between the finance and retrofit sectors, reforming the EPC system, and developing comprehensive, place-based approaches. It’s time to embrace the potential of retrofit not just as a means to an end but as a catalyst for a more sustainable, resilient, and equitable future.
Rachael Owens is Co-Director of the National Retrofit Hub, where she leads efforts to coordinate, advocate, and accelerate retrofit delivery across the UK.
This post is republished with permission of the WCPP.