Green home finance consumer typologies and barriers

This report presents findings from research that explored UK homeowners’ attitudes to using green finance products to help install home decarbonisation measures. It looked at: * which products were preferred * the barriers to using these products * how consumers could be supported to overcome these barriers It also identified different consumer typologies on attitudes towards green finance. The research, completed by Verian, involved: * in-depth interviews with owner-occupiers, landlords and installers of green home upgrades * focus groups with owner-occupiers and landlords --- RAF067/2324 Green home finance consumer typologies and barriers Research findings Verian (2025) 1 Views expressed in this report are from the relevant research agencies, based on data collected from research participants and other evidence, and not necessarily those of the UK government. © Crown copyright 2025 This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk. Where we have identified any third-party copyright information you will need to obtain permission from the copyright holders concerned. 2 Green home finance consumer typologies and barriers Contents 1. Executive Summary ________________________________________________________ 4 1.1 Research background ___________________________________________________ 4 1.2 Findings ______________________________________________________________ 5 2. Introduction ______________________________________________________________ 8 2.1 Project context _________________________________________________________ 8 2.2 Research objectives _____________________________________________________ 8 3. Methodology ____________________________________________________________ 10 3.1 Methodology summary __________________________________________________ 10 3.2 Considerations for interpreting findings _____________________________________ 12 4. Findings ________________________________________________________________ 13 4.1 Consumer typologies ___________________________________________________ 13 4.2 Context for green home upgrades _________________________________________ 18 4.3 Attitudes to finance and debt _____________________________________________ 22 4.4 Consistent motivators and barriers for green finance __________________________ 24 4.5 Responses to green finance products ______________________________________ 26 4.6 Roles of government, installers, and lenders in delivering green finance products ____ 40 4.7 Messaging and information around green finance products _____________________ 42 5. Conclusions _____________________________________________________________ 45 3 Green home finance consumer typologies and barriers 1. Executive Summary 1.1 Research background Context The government is exploring a potential new scheme to support homeowners to make home decarbonisation upgrades to their properties (referred in this summary as ‘green home upgrades’) by making green finance products available. The proposed scheme is in its early stages of development. The target population has not yet been determined but is likely to include both owner-occupiers and private landlords in England. Research objectives DESNZ commissioned Verian to conduct qualitative research to understand, in greater detail, the views of the eligible population for the proposed green finance scheme. The research will support the government’s understanding of how the scheme can best be designed and marketed to different types of consumers to maximise uptake. The six main research questions were: 1. What are the different consumer typologies within the UK population (with respect to building decarbonisation)? 2. What are consumers’ attitudes towards taking up green finance for the purpose of installing home decarbonisation measures, and what influences these attitudes? 3. What are consumers’ attitudes towards specific green finance products, which are preferred, and how do preferences vary across groups of consumers? 4. What are the barriers and facilitators to take-up of different green finance products? 5. How can consumers be supported to overcome barriers to green finance take-up (for the purpose of installing home decarbonisation measures)? 6. Who do consumers trust to (i) deliver green finance products; and (ii) deliver advice on green finance products? Methodology Research was conducted between November 2024 and February 2025. After a scoping workshop, primary research was conducted in two phases. The first phase comprised 35 qualitative, online in-depth interviews lasting one hour, conducted with a sample of owner- occupiers, landlords and installers of green home upgrades. The second phase of research comprised five online 90-minute focus groups with owner-occupiers and landlords. These focus groups explored responses to more detailed descriptions of four of the potential green finance scheme products, including example repayment terms with scenarios to illustrate how each product could work in practice. 4 Green home finance consumer typologies and barriers 1.2 Findings What are the different consumer typologies within the UK population (with respect to building decarbonisation)? During the initial scoping workshop several factors were theorised as potentially influencing attitudes to green home upgrades. These factors were attitudes to the environment, property type and age, household composition, financial circumstances, and current Energy Performance Certificate (EPC) rating. The importance of these factors was then tested through the subsequent phases of the research. All of these factors were important in influencing attitudes to green home upgrades. Attitudes to debt also varied across the sample. This research highlighted six consumer typologies covering owner-occupiers and landlords. A typology based on attitude to green finance, as opposed to the green home upgrades themselves, was selected as it was more pertinent to the research questions and would be more useful for designing a green finance scheme. Owner-occupiers could be divided into four groups by their relative level of willingness to take on debt to fund green home upgrades, and their relative ability to afford repayments. Landlords could be divided into large and small portfolio typologies. Diagram 1: Consumer Typologies What are consumers’ attitudes towards green finance products, which are preferred, and how do preferences vary across groups of consumers? Awareness of existing green finance for home upgrades was mixed across the sample. Participants were generally open to a range of options for green finance products when given high-level detail only, but this openness reduced when shown example interest rates and repayment terms. Four options were explored in detail: secured green borrowing via a mortgage, point of sale finance, personal loans, and heat as a service. 5 Green home finance consumer typologies and barriers Table 1: definitions of four green finance models shown in phase two of the research Green finance model Definition Secured green borrowing Point of sale finance Personal green loans Heat as a Service Finance typically offered on top of an existing mortgage, which allows homeowners to borrow additional funds at reduced rates to spend on green home improvements (e.g. insulation, solar panels, a heat pump): all of the additional borrowing must be spent on green home improvements, from any certified installer. Finance offered at the moment of purchase which can be used to fund a green home improvement through delayed payment, it involves retailers or service providers partnering with lenders in a government backed scheme to offer lower interest rates than commercially available. Loans issued based on the borrower's credit history and income which can be used to fund energy-efficient appliances, insulation, or renewable energy installations; through a government-backed partnership with lenders they might have lower interest rates than a commercial loan. A model which involves a provider installing a product such as a heat pump and offering maintenance services for a monthly subscription, which can be transferred to a new owner when the property is sold; the provider retains ownership of the technology throughout the length of the subscription contract meaning there are no upfront costs for the homeowner. Secured green borrowing was consistently preferred as the most appealing option across different groups. This was predominantly due to the lower interest rates available for this option. Furthermore, additional mortgage borrowing to invest in their home felt intuitive to participants and gave them additional confidence, as the lender has vested interest in maintaining the property’s value. Other options had less appeal, predominantly due to the higher example interest rates. What are the barriers and facilitators to take-up of different green finance products? Participants noted several barriers which could prevent them using this scheme. Some had a strong aversion to any kind of debt they perceived as avoidable, and would much prefer to fund upgrades by other means or simply not undertake them. Other barriers included: • Perceived complications that would be created when selling the property, which would put off potential buyers who might be required to take on payments 6 Green home finance consumer typologies and barriers • Energy savings being insufficient to cover debt repayments • A lack of trust in installers Participants were also uncertain about how each finance option would work in practice, but did not consider this to be a barrier as they expected this information to be forthcoming when the scheme design is finalised. Participants also identified a range of facilitators that would encourage them to use green finance. They consistently expected that a government-backed green home finance scheme would offer significantly more attractive interest rates than equivalent commercial products. With low interest rates available, those with higher ability to make debt repayments anticipated that using the scheme would enable them to fund upgrades with relatively cheap credit so they could allocate the money that would otherwise be spent elsewhere (e.g., in savings or pensions). Groups with lower ability to make debt repayments felt that this scheme could enable them to make upgrades they wouldn’t otherwise be able to afford. Landlords were typically more hesitant than owner-occupiers to make green home upgrades, unless required to do so as part of Minimum Energy Efficiency Standards (MEES). This was seen as the main facilitator to uptake of a green finance product. How can consumers be supported to overcome barriers to green finance uptake (for the purpose of installing home decarbonisation measures)? Participants felt that the most important support to overcome these barriers would be to offer appealingly low interest rates, as well as flexible repayment terms where possible, so individual consumers could choose terms that best suited their own circumstances. Providing detail and reassurance on the implications and options when selling a property mid-term was also welcomed as a way of overcoming this barrier. When discussing their concerns about trust in installers, participants wanted to understand if the government backing for this scheme would give any additional protection from poor quality installation, and if the government will provide a list of approved suppliers. Who do consumers trust to (i) deliver green finance products; and (ii) deliver advice on green finance products? Lenders were perceived as having the primary role in delivery and consumers expected them to be their main point of contact for arranging any green finance product, rather than the government (participants expected the government to take more of a background role). Participants felt that this was an appropriate division of responsibility. However, there was concern about lenders restricting the choice of provider. Participants were keen to have a list of government-approved suppliers, as long as this provided a range of options so users of the scheme would still have choices. Government was also seen as having an important role in publicising the scheme and highlighting benefits, particularly environmental benefits, while lenders were expected to provide more information on specific product details and terms. 7 Green home finance consumer typologies and barriers 2. Introduction 2.1 Project context The UK has committed to achieving net zero emissions by 2050. In 2022, domestic heating accounted for 13% of the UK’s carbon emissions. 1 To achieve net zero emissions, virtually all heat in buildings will need to be decarbonised. Improving the energy performance of buildings, including upgrading the energy efficiency of residential homes, will be a crucial element of this process. 2 Previous research has indicated that stimulating the market for private green finance may present an opportunity to achieve this goal.3 At the time of research, DESNZ is exploring a new scheme to support homeowners to make upgrades to their properties by making green finance products available. The proposed scheme is in its early stages of development. The target population has not yet been determined but could include owner-occupiers and private landlords in England. The measures in scope – referred to in the following sections of this report as ‘green home upgrades’ – may include: • Replacing windows and doors • Installing secondary glazing • Using energy efficient lighting • Insulating lofts or walls • Adding draught-proofing • Upgrading heating (such as replacing a gas boiler with a heat pump) • Generating renewable energy from sources such as wind or solar power 2.2 Research objectives DESNZ commissioned Verian to conduct qualitative research to understand the views of the eligible population for the proposed green finance scheme in more detail. The main aims of the research were to develop consumer typologies for this scheme, and explore what barriers are faced that inhibit scheme uptake and how consumers can best be encouraged to engage with it. The research will support the government’s understanding of how the scheme can best be designed and marketed to different types of consumers to maximise uptake. 1 DESNZ 2022 UK Greenhouse Gas Emissions, Final Figures: 2022 UK Greenhouse Gas Emissions, Final Figures 2 DESNZ Heat and buildings strategy, 2021: https://www.gov.uk/government/publications/heat-and-buildings- strategy 3 DESNZ Green Home Finance, Expert Analysis from a Behavioural Perspective: Green home finance: expert analysis from a behavioural perspective 8 Green home finance consumer typologies and barriers The research aimed to address the following research questions: 1. What are the different consumer typologies within the UK population (with respect to green finance for building decarbonisation)? 2. What are consumers’ attitudes towards taking up green finance for the purpose of installing home decarbonisation measures? a. What influences attitudes towards taking up green finance? For example, social influence, cultural norms. 3. What are consumers’ attitudes towards specific green finance product? For example, low-interest loan, salary sacrifice, heat as a service, green savings account, property- linked finance mechanism, one-stop shop. a. Which, if any, of these do they prefer and why? b. How do attitudes vary across different consumer typologies? 4. What are the barriers and facilitators to take-up of different green finance products? a. How do these vary across different consumer typologies? b. How likely are landlords to take-up green finance to comply with strengthened Private Rented Sector Minimum Energy Efficiency Standards? 5. How can consumers be supported to overcome barriers to green finance take-up (for the purpose of installing home decarbonisation measures)? For example, incentives, grants, information, regulation. a. What type(s) of incentives are most likely to help consumers overcome barriers to green finance take-up? How (if at all) does this vary between typologies? b. How would consumers prefer to learn about green finance products? 6. Who do consumers trust to (i) deliver green finance products; and (ii) deliver advice on green finance products? For example, the government, installers, energy companies, financial institutions. a. What role, if any, should lenders play in supporting consumer uptake of green finance? b. What do consumers feel the government’s role should be in rolling out green finance products? c. What role, if any, should installers play? 9 Green home finance consumer typologies and barriers 3. Methodology This section provides an overview summary of the methodology and sample included in this research. Additional detail on methodology, sample, and the analysis approach can be found in Appendix 6.1. 3.1 Methodology summary Research methodology Scoping workshop At the outset of the research, the DESNZ and Verian teams held a scoping workshop to discuss potential characteristics for the consumer typologies and identify topic areas to explore further in the research. During this DESNZ and Verian initially created a longlist of potential characteristics that could inform the typologies and used these to guide the sample for the first phase of primary research. Following this, primary research was conducted in two phases. Phase 1 primary research: qualitative interviews The first phase comprised of 35 qualitative online in-depth interviews lasting one hour, conducted with a sample of owner-occupiers, landlords and installers of green home upgrades. Interviews explored participants’ attitudes to energy usage and green home upgrades, attitudes towards using finance to make green home upgrades, and responses to high-level summaries of six potential green finance products. These options were: secured green lending, unsecured green lending, a green savings account, heat-as-a-service, property linked finance, and retrofit salary sacrifice. Interim findings from this phase were used to create six consumer typologies (detailed in section ). Development of consumer typologies Prior to the second phase of research, Verian developed two possible options for consumer typologies through analysis of phase one findings. The first option focused on consumers’ attitudes to green home upgrades and the second option focused on consumers’ attitudes to green finance. Given the goals of the research and the focus of the scheme being green finance, DESNZ and Verian opted to create four owner-occupier groups based on participants’ willingness to use finance products to fund green home upgrades and ability to make repayments. Two distinct groups of landlords were also identified in the research: those who had larger portfolios, for whom this was their primary source of income, and others who tended to have smaller portfolios and often used this as a supplementary source of income. 10 Green home finance consumer typologies and barriers These typologies were used to define the sample for the second phase of research: one discrete focus group was conducted for each of the four owner-occupier typologies, alongside one landlord focus group that comprised an even split of both landlord typologies. Phase 2 primary research: focus groups The second phase of research comprised of five online 90-minute focus groups with owner- occupiers and landlords. These groups were designed to align with the typologies developed following the phase 1 research. These groups explored responses to more detailed descriptions of four of the potential green finance scheme products, including example terms with scenarios to illustrate how each product would work in practice. As phase 2 explored green finance products in more detail, DESNZ had to prioritise the options taken forward for testing. The unsecured (Personal green loans and Point of sale finance), secured lending (Secured green borrowing) and Heat as a Service options were chosen for further testing as they were of policy interest to DESNZ. The in-depth interviews were conducted in November and December 2024, and focus groups in January and February 2025. All fieldwork was moderated by Verian researchers, using discussion guides and materials developed with DESNZ oversight. Sample and recruitment In total, 67 participants were involved in the research (35 interview participants and 32 in focus groups). All participants were recruited from Verian recruitment partner Roots Research’s online panel. Five installers of energy efficiency products took part in interviews. Installers were employees or directors of companies installing a range of different types of green home upgrades. All reported their roles to be customer-facing at least 60% of the time, and were helping customers make decisions about which measures to install. 45 owner-occupiers (20 in interviews, 25 in focus groups) were recruited. The sample included a mix of locations within the UK, age, financial attitudes, attitudes to climate change, mix of property age, property type, property value, and current EPC rating. All participants were required to be empowered to make decisions, whether solely or jointly, about adapting their properties, including potential green home upgrades. 17 landlords (10 in interviews, 7 in focus groups) were recruited, with the sample covering the same range of characteristics as owner-occupiers above. The landlord sample included a mix of portfolio sizes, split between those with 1-3 and those with 4-7 properties (no landlords with more than 7 properties participated in the research). The sample also included a mix of landlords operating as sole traders and those who had set up limited liability companies (LLCs) to manage their property businesses. Note on terminology Where findings are consistent across the three sample groups (installers, owner-occupiers, and landlords), this report refers to ‘participants’. Where findings are consistent across owner- 11 Green home finance consumer typologies and barriers occupiers and landlords but not relevant to installers the report refers to ‘homeowners’. The report also notes whenever findings are relevant to one specific sample group. Where the report quotes participants, it refers to them in the format: Phase of research they participated in, their typology, their age bracket, and their EPC rating. Where landlords are being quoted this is the average EPC rating across their properties. As the phase 2 typologies were developed after phase 1, participants from phase 1 are referred to simply as owner- occupiers, landlords, or installers. 3.2 Considerations for interpreting findings Readers should be mindful of the following caveats when interpreting the findings of this research. Firstly, this research was purely qualitative, exploring relevant topics in depth with a small number of participants. Given this, the research should not be interpreted as representing the views of all owner occupiers and landlords, but rather indicative of a range of opinions held by these groups. Secondly, this research was conducted at the early stages of development of the potential new scheme, before many details of the scheme had been established. As participants themselves noted, the appeal of different green finance products varied significantly according to the precise interest rate available, the terms on offer, and the type and cost of green home upgrade being considered. Participants were able to reflect in depth on hypothetical scenarios, including example interest rates and repayment amounts for some potential products, although in reality responses would be likely to be influenced by many other factors beyond the scope of this research. Research should therefore be interpreted as an indication of the factors which will influence uptake of the scheme. Thirdly, three of the six green finance products were only explored in the first phase of research in relatively less detail than the second phase, namely the green savings account, property linked finance, and retrofit salary sacrifice. Findings for these products only reflect participants’ general responses to an overview description of each, rather than the result of prolonged consideration based on them and the needs of their property. Any further considerations for interpreting specific findings are highlighted throughout the report where relevant. 12 Green home finance consumer typologies and barriers 4. Findings 4.1 Consumer typologies This section outlines potential consumer typologies within the UK population with regards to building decarbonisation. Key findings: 1. Initial scoping work and interim qualitative findings from interviews were used to create a set of six consumer typologies, which were then validated in focus groups. 2. Owner-occupiers can be broadly grouped by their relative level of willingness to take on finance and debt to fund green energy upgrades, and relative ability to make repayments. 3. Landlords can be broadly divided into large portfolio and small portfolio groups. Creating typologies This research used an iterative approach to define and explore potential consumer typologies for the green finance scheme. As described in section , DESNZ and Verian initially created a longlist of potential characteristics that could inform the typologies in a scoping workshop, and used these to guide the sample for the first phase of primary research (the in-depth interviews). Analysis of the interview findings suggested two possible ways to create typologies for owner- occupier groups. One option was to use a combination of type of home, life stage and household circumstances to divide owner-occupiers into five broad groups. A second option was to create four owner-occupier groups based on participants’ willingness to use finance products to fund green home upgrades and ability to make repayments. DESNZ determined that the latter option was more relevant to take forward. Two distinct groups of landlords also emerged in the research: those who had larger portfolios and for whom this was their primary income, and those who with smaller portfolios which often supplemented another form of income. There were some key differences between landlords and owner-occupiers, such as differences in motivation (discussed above), lack of flexibility around timings of making upgrades, and the broad separation of personal finances from their property portfolio. However, there were enough similarities to include both landlords and owner-occupiers in one set of typologies, outlined below. These typologies were used to define the sample for the second phase of research: one discrete focus group was conducted for each of the four owner-occupier typologies, alongside one landlord focus group that comprised an even split of both landlord typologies. 13 Green home finance consumer typologies and barriers Consumer typology groups Diagram 1: six consumer typology groups categorised by relative ability to make repayments and relative willingness to take on debt for energy efficiency upgrades The full sample specification, including recruitment criteria to define typologies, can be found in Appendix 6.2. Broadly, owner-occupier typologies were structured by: • Attitudinal measures of willingness to take on finance to fund general home improvements.4 • Financial circumstances, defined by their self-reported optimism to afford everyday essentials and discretionary purchases over the course of the next year (used as a proxy for participants’ ability to make repayments).5 4Willingness and ability were both determined by potential participant responses to the recruitment screener. Willingness to use finance was determined by potential participants’ answers to the question “On a scale of 1-5, with 1 being very uncomfortable and 5 being very comfortable, how do you feel about using finance options such as loans or credit to make improvements to your home?”, with those who answered 1-2 being placed in the low willingness groups and those who answered 3-5 being placed in the higher willingness groups. 5 Those placed in the low ability to repay groups were those who responded 1-3 to the questions “On a scale of 1- 5, with 1 being not at all optimistic and 5 being very optimistic, how optimistic do you feel about your ability to afford to buy everyday essentials over the course of the next year?” and “On a scale of 1-5, with 1 being not at all optimistic and 5 being very optimistic, how optimistic do you feel about your ability to afford luxury purchases over the course of the next year?”, with the high ability to repay grouping being those who responded 4 or 5. 14 Green home finance consumer typologies and barriers Table 2: typologies for owner occupier groups Attitude to finance Higher ability to repay Lower ability to repay Higher willingness to take on debt Comfortable and open Constrained but open Lower willingness to take on debt Comfortable but cautious Constrained and cautious Landlords were grouped into two relatively simply divided groups based on the number of properties they owned: large-portfolio landlords were defined as those with three or more properties, small portfolio landlords were defined as having one or two only. The latter were more likely to operate as sole traders, although there was some variation within this. Due to the qualitative nature of this research the sample size was 32, split into 6 typologies. These typologies should therefore not be seen to represent equal sized groupings within the wider population, and instead are purely indicative of a range of sentiments that exist. Group 1: Owner-occupiers with high willingness to use finance to fund green home upgrades, high ability to make repayments: ‘Comfortable and open’ This group tended to be higher earners, and self-identified as ‘savvy’ with finances. Typically, these owner-occupiers lived in high-value properties and viewed their homes as a significant financial asset (e.g., were more conscious of the property’s value, and saw increasing this as a key motivator in making green home upgrades). They were more comfortable with debt and finance, and typically preferred low or zero-interest finance if this allowed them to keep more of their own money in savings or a pension earning a preferable rate of return. This group’s properties covered a wider range of potential EPCs and household compositions than other groups, and therefore also included a broad range of potential planned green home upgrades, (encompassing every potential upgrade discussed in this research). “I’ve got a very good pension, I’d much prefer a low-interest loan and put more into the pension rather than paying out of pocket after tax." (Phase 1 participant, Owner-occupier, 55-64, EPC C) Group 2: Owner-occupiers with high willingness, low ability to repay: ‘Constrained but open’ Like group 1, this group was not inherently debt averse but preferred to avoid debt if alternatives were available. This group was more financially constrained, due to having relatively low and/or fixed incomes such as pensions or having high day-to-day costs such as mortgages and childcare. Accordingly, young families and retirees were well represented in this group. This group felt under pressure from high energy costs but typically had limited savings to invest in green home upgrades. 15 Green home finance consumer typologies and barriers Owner-occupiers in this group could generally specify changes they would be keen to make to their home soon, particularly to improve energy efficiency. They preferred to make upgrades sooner rather than saving up to make changes incrementally. Many lived in homes with EPC ratings of D or below, and most commonly referred to loft or cavity wall insulation, upgrading doors and windows, and changing the heat source (particularly if their current boiler was old and will need replacing soon) as the upgrades they would like to make. This group placed a particular emphasis on loans for green home upgrades needing to ‘pay for themselves’ through savings on bills compared to other groups. This made green finance feel different to, for example, mortgages or car loans, which have no immediate return to consider. Some suggested this would ‘justify’ taking on additional debt even if they already had other debts. This group was also particularly interested in finance to cover additional spending (e.g., decoration beyond just ‘making good’) so that they could make substantial changes to the home all at once and pay this off after the changes had been made. “I’d prefer one larger loan to do everything we want, get the house how we want it now rather than saving. If it’s a low interest rate I won’t pay much more, I’m putting money towards it either way, this way I’m just doing it in a nicer house” (Phase 1, Owner-occupier, 25-34, EPC C) Group 3: Owner-occupiers with low willingness, high ability to repay: ‘Comfortable but cautious’ Owner-occupiers in this group were more cautious about taking on any kind of debt to fund green home upgrades unless terms were very positive (i.e., 0% interest) but would have the ability to afford repayments should they take this on. Some owner-occupiers in this group were satisfied already with their home’s energy efficiency, with EPC ratings of C or above, and saw little urgent need to make future upgrades. Some had lived in their current homes for a long time and so had tended to have made any desired home upgrades already. This group also included some homeowners planning to move relatively soon for a range of reasons, so were unwilling to take on debt to fund improvements without reaping the benefits of energy savings in the long term. All emphasised becoming or staying debt-free, including paying off their mortgage as early as possible, as an important personal financial goal. “I can see the appeal of loans for people without other means… personally I want to be debt free for good next year" (Phase 1, Owner-occupier, 45-54, EPC C) Group 4: Owner-occupiers with low willingness, low ability to repay: ‘Constrained and cautious’ Owner-occupiers in this group were generally the most cautious about any green finance product. They were typically highly debt averse: in some cases, from previous experiences in which debt had caused them a great deal of stress; or in others, where they had outstanding debt and were keen to avoid adding any more to this. In contrast to group 3, this group also had limited flexibility to make repayments even if a green finance offer with particularly appealing terms was made available to them. 16 Green home finance consumer typologies and barriers Some owner-occupiers in this group raised practical considerations for not being able to improve energy efficiency, for instance those living in leasehold flats in tower blocks who faced practical challenges in making some improvements, even if technically they would have permission to do this. However, generally this group had upgrades they would like to make to reduce bills but could not afford or justify the upfront expense. The potential upgrades raised most often were upgrades to doors and windows, and loft or cavity wall insulation (this group typically saw investing in solar panels or heat pumps as unrealistic given their financial circumstances). They were also less likely than other groups to be planning other renovations, so did not have this trigger point for considering green home upgrades. ""I spend my life never being in debt to anyone… If I haven't got the money, I won't buy it. I will never be in debt. I will never owe anybody anything." (Phase 1, Owner-occupier, 45-54, EPC D) Group 5: Small portfolio landlords This group comprised landlords with one or two properties. For many of these landlords, rental properties were not their primary source of income but supplemented a full-time job and/or were seen as an investment for later life. Some of this group described themselves as ‘accidental’ landlords who had inherited a property or kept a property to rent out when moving in with a partner. Compared with other landlords, this group was more likely to have misconceptions about incoming MEES requirements, such as thinking that the government had (at the time of research) announced an intention to introduce minimum EPC band C requirements for rental properties. Those with properties with EPC ratings of C or higher typically saw no need to make further upgrades. These landlords were typically operating as sole traders rather than managing their portfolios through LLCs, and to some extent had merged the finances for the rental property with their own personal finances. This meant that potential upgrades might be taken from personal savings, rather than a separate fund ringfenced for the rental property. Some of this group reported having limited profits from rental income to invest in non-essential home upgrades. They were also likely to prioritise keeping long-term tenants in place where there is a positive relationship, and were reluctant to remove tenants to make upgrades. Those with lower EPCs planned to make smaller changes (not requiring tenants to move, such as upgrading windows/doors) but would avoid larger changes (insulation, heat pumps) until they were between tenancies. Ability to invest in green home upgrades also varied by location: outside of London/South East England, some landlords felt that upgrades would be unlikely to add much value to their properties, and would cost much of their expected profit from rental income. “These [examples] do feel like they’ve been developed with London property prices in mind, where yes you might invest ten grand in your home but the values can go up that much easily. My rental properties are terraced houses in Wales – investing a few thousand would wipe out any money I’d make this year from rent and that would just be gone, I wouldn’t see that back.” (Phase two, Small portfolio Landlord, 25-34, EPC D) 17 Green home finance consumer typologies and barriers Group 6: Large portfolio landlords This group comprised landlords with three or more properties. Their portfolio was typically the main source of income, with a clear distinction made between personal and rental property finances, and were more likely to have set up LLCs. Due to their larger portfolios, these landlords were more experienced buying and selling properties than any other group and had more tenant turnover than landlords in group 5. This generally made this group more confident in their ability to replace tenants quickly if needed, and to manage any complications selling the property (this was relevant for some green finance products, as detailed in section ). This group typically had enough flexibility to have a property vacant for a brief period while making home upgrades, but would still prefer to avoid this if possible, to minimise lost income. These landlords were typically more open to making green home upgrades to properties than landlords in Group 5. Large portfolio landlords placed more emphasis on easily attracting new tenants or on finding buyers if wanting to sell and highlighted the importance of making a home seem warm and comfortable for viewings. This group had made or planned to make a wide range of green home upgrades, but none had seriously considered solar panels or heat pumps as costs were seen to outweigh any potential returns. Double-glazing and fixing severe draughts were seen as the only ‘urgent’ upgrades to install when buying a new property before tenants moved in, while other upgrades were seen as more discretionary. 4.2 Context for green home upgrades This section highlights some of the wider contextual factors that influenced attitudes to green home upgrades and green finance throughout the research. Key findings: 1. Attitudes to energy usage and energy efficiency varied, but all homeowners were motivated to reduce their home energy usage. 2. The most important motivation for owner-occupiers to reduce usage was to reduce day- to-day energy bills, followed by increasing comfort and reducing environmental impact. These motivations were supported by a range of secondary benefits. 3. Landlords were mostly motivated to improve energy efficiency by Minimum Energy Efficiency Standards, and were not typically responsible for paying energy costs on their rental properties. 4. A wide range of factors influenced views and attitudes to green home upgrades. Most significant were the characteristics of the property, the household’s financial circumstances, and plans to move or stay in the property long-term. 18 Green home finance consumer typologies and barriers Views of energy usage Owner-occupiers varied in their understanding of energy usage and energy efficiency but consistently mentioned trying to reduce their usage amid concerns about high energy costs. Those who were able to say how much energy they were using often had smart meters, which made tracking usage easier, or had installed various green home upgrades already. Owner- occupiers without smart meters did not generally have a clear grasp on their household energy usage or their energy efficiency. Attitudes to energy usage also varied by household composition: households with children, older people, or people with long-term health conditions felt less able to reduce their heating and, therefore, more exposed to high and rising costs. "[I am] very conscious of energy usage, obviously energy prices have shot up.” (Phase 1, Owner-occupier, 45-54, EPC B) Landlords tended to be less aware of energy usage in their properties. For most of the landlord sample, tenants were responsible for paying energy bills (although landlords did note this would be different for many houses in multiple occupation or short-term lets, where a landlord would be responsible for paying energy bills). Landlords were more likely to raise concerns about tenants not using enough energy, i.e., not having heating on enough to prevent damp and mould. “They might just hardly use the heating and then you get more condensation, more mould and cost you more in the long term.” (Phase 2, Small portfolio Landlord, 55-64, Average EPC C) Motivations for green home upgrades Participants across the sample reported generally consistent motivations for green home upgrades, whether made in the past or planned for the future. Green home upgrades were often planned as part of larger home improvements or more perennial work required to update a property every few years. Reducing day-to-day energy costs from heating the home was consistently the most important motivation. Making the home more comfortable, i.e., reducing drafts and feeling warmer in cold weather, was also a significant motivator, linked to cost. “It gets to the point, you're cold, you put the heating on… I feel like I can't really worry [about turning the heating on] with the kids now…they need the heat” (Phase 1, Owner-occupier, 35-44, EPC D) Improving the sustainability of the home varied in importance as a motivator but was typically seen by owner-occupiers as a secondary benefit behind cost and comfort. Maintaining or increasing the property value was relevant to some owner-occupiers if they were planning to sell soon, but this was more abstract and less directly motivating for others. Some green home upgrades like upgrading windows and doors were also seen as providing additional benefits by making a home look more attractive, reducing noise pollution, and generally making the property feel less tired or dated. 19 Green home finance consumer typologies and barriers Landlords’ main motivation for improving energy efficiency was generally linked to future- proofing their properties against increasing Minimum Energy Efficiency Standards (MEES). Landlords would often make green home upgrades when they bought a new property but preferred only to replace existing parts of the property after that, due to the difficulty conducting repairs with tenants in-situ. Variables influencing views of green home upgrades Views on and plans for making green home upgrades were affected by a wide variety of factors. A key factor was financial circumstances and attitudes, including the level of savings available to make upgrades and/or their relative willingness to take on debt. Property characteristics also influenced views, including the size, age, and current EPC rating of the property. Homeowners with lower EPC ratings, larger homes, and older homes were all more motivated to make green home upgrades, due to higher potential savings on offer, but also in some cases felt that upgrades would be particularly complicated for their own circumstances, for instance older properties might need more complex or novel types of upgrade made which could require prioritisation between upgrades or more extensive financing. Homeowners’ future plans for a property also had a significant impact on attitudes towards home upgrades. Those planning other renovations or upgrades were often keen to include green home upgrades to minimise overall disruption, while those planning to sell and move in the next few years felt the benefit to them would be limited in terms of what they would save on energy bills. Those intending to sell a property in the next few years were mostly interested in the least expensive and most straightforward improvements, while those who were planning to stay in homes for much longer, and/or were planning large scale renovations, were more open to larger or more expensive upgrades. “If we were staying, we'd definitely be doing things, but because we want to move, we don't see the point in investing lots of money." (Phase 1, Owner- occupier, 25-34, EPC A) Views and experiences of different upgrades Owner-occupiers making or planning green home upgrades tended to start with those that were seen as the easiest wins: for those with lower EPC ratings, these comprised of secondary glazing and draught-proofing doors and windows. Some made distinctions between more urgent improvements like draught-proofing, and less urgent improvements like changing to energy efficient lighting – and this urgency was often linked to physical comfort. For landlords, these improvements were seen as cyclical and incorporated into the work done in between tenancies. Insulation was seen as a key improvement, although one to be made after securing the ‘easier wins’. Some homeowners had experience with heat pumps or solar panels, and these were not seen as urgent upgrades: only those who already had high EPCs, or were doing major renovations, had installed these measures. This was reflected in installers’ reported experiences of working with these upgrades. Views on these more expensive upgrades were 20 Green home finance consumer typologies and barriers more mixed, with many having no direct experience of heat pumps and expressing scepticism about them. As well as the home upgrades under consideration for the scheme outlined in section , participants also spontaneously mentioned a range of other upgrades they would consider and would be like to see included. These were external cladding, switching to more efficient radiators, underfloor insulation, and energy-efficient underfloor heating. “Adding insulation in the loft and the garage is one of the best things we’ve done to this house. Barely need the heating on for an hour in the evenings." (Phase 2, Comfortable and open, 35-44, EPC B) Homeowners who had positive views on more expensive green home upgrades (e.g., solar panels and heat pumps) tended to already live in more energy-efficient homes. These tended to be older, more affluent owner-occupiers, and many had older children who had or were about to move out of the property. Those who had positive views on insulation, but not heat pumps, tended to have homes with lower EPC ratings, or had recently improved their EPC through adding insulation. Some homeowners had looked into green home upgrades but decided against them, for three main reasons. The first was the perceived inappropriateness of their property, for instance solar panels not being relevant due to the orientation of the roof, their house being insufficiently insulated for a heat pump, or being the wrong kind of property for various types of insulation; this tended not to be mentioned for upgrades like secondary glazing or loft insulation. The second was cost; this was a particularly pressing barrier to adoption of solar panels and heat pumps, but tended not to be mentioned for other, less expensive, upgrades. The third reason given was inconvenience: either the application process for funding or finding qualified tradespeople to do the work was thought to be too difficult. Additionally, some owner-occupiers had a scepticism of government schemes, which they had limited experience of and tended to have not qualified for when they had applied or investigated. “I feel like there are all these government initiatives, but they're not real, they don't exist... there is always some kind of loophole, you earn too much, you don't earn enough, the companies they list don't actually do it. I feel like it’s one big scam.” (Phase 1, Owner-occupier, 34-44, EPC D) 21 Green home finance consumer typologies and barriers 4.3 Attitudes to finance and debt This section discusses participants’ general attitudes to finance for making home upgrades, including green home upgrades, to provide context for responses to specific green finance products in later sections. Key findings: 1. Homeowners were consistently keen to avoid debt if possible, and would prefer to fund green home upgrades through other means such as savings. 2. Financing green home upgrades was seen as different from financing other home upgrades, as there is a direct cost/benefit trade-off to consider. 3. However, those who had previously made green home upgrades were typically very satisfied with the choice, despite not knowing exactly if the resulting savings completely mitigated the cost. 4. Attitudes to finance and debt varied by the type of home upgrade being considered. 5. The sample for this research had relatively limited experience of using green finance in past, so expectations for green finance products were fairly open. Attitudes to using finance for general home upgrades Homeowners were divided on their attitudes to finance and debt, with this divergence cutting across a range of other socio-economic factors. These differences were used as the basis for the typologies developed for phase 2 of this research, as detailed in section . Generally, homeowners were cautious around debt and financing for home improvements. Homeowners described this caution as both a rational aversion to debt, which could be overcome if it was financially prudent, and a more instinctive or emotional aversion to debt in principle. Some of this caution was attributed to relatively high expected interest rates, making improvements more expensive than if paid for out of savings. This was a particular concern for those considering expensive upgrades and upgrades with uncertain or limited expected energy savings, such as heat pumps. Owner-occupiers who had had negative previous experiences around financial insecurity, or who had paid off all of their debts, including their mortgage, also expressed strong reservations about taking on more debt. “I have had problems with debt before, and now I’m debt-free, well the phrase free is the right one. I don’t want to go back to that if I can possibly avoid it.” (Phase 1, Owner-occupier, 45-54, EPC C) While homeowners were generally wary of debt, mortgages were seen as an exception to this rule and understood as a ‘necessary’ form of debt. Homeowners also viewed mortgage lenders in a more positive light than other loan providers, as discussed in more detail in section . 22 Green home finance consumer typologies and barriers Owner-occupiers who were more willing to take on debt or take out financing options often felt that they could work out a way to do so that would save them money. They often had experience of using financing options in this way: for example, some had experience of choosing specific energy tariffs to power both their home and charge an electric vehicle in a cost-effective way, or using 0% finance to fund an upgrade, such as new doors or windows, and leaving more money in savings to accrue interest. Attitudes to using finance for green home upgrades Financing green home upgrades was seen as different from other home upgrades, as there is a direct cost/benefit trade-off of to consider, with homeowners expressing concern that savings would not cover the outlay required. However, owner-occupiers who had previously made green home upgrades were typically very satisfied with the choice, despite not knowing exactly if the resulting savings completely mitigated the cost. This suggests that potential users of a green finance scheme may overestimate the importance of this cost-benefit calculation and underestimate the additional benefits such as improved comfort, which is a consideration that should be kept in mind when interpreting these findings. Financing green home upgrades was not spontaneously seen as different from financing other home improvements, with the exception of solar panels and heat pumps. Several homeowners had heard of government schemes, in particular grants, that would help them to fund solar panels and heat pumps, and so already understood they might not need to cover the entire cost themselves. Furthermore, homeowners often did not perceive solar panels as improving the comfort of the home (unlike other upgrades), so these prompted a more purely financial calculation. While landlords with smaller portfolios tended to express the same views as owner-occupiers, those with larger portfolios and more experience were more open to using financing to fund improvements, expecting to be able to do this through their LLC to minimise their own exposure. Past experiences of financing green home upgrades Owner-occupiers making smaller green home upgrades, like installing double-glazing or partially insulating their property, tended to have paid for this out of pocket. Those who had installed heat pumps or solar panels had often paid for this through financing. One owner- occupier had taken out a green mortgage when building their own property, and had seen their mortgage rate decrease as the property became more environmentally friendly. Other participants spontaneously mentioned that they would expect this to be the case for financing green home upgrades. "At the moment, our mortgage is like a noose around our neck. So anything that lowers that is needed." (Phase 1, Owner-occupier, 55-64, EPC D) Landlords who had paid for the properties through their savings tended to report paying for upgrades this way too. Those who bought their properties using buy-to-let mortgages were 23 Green home finance consumer typologies and barriers more likely to have funded large-scale renovations by adding borrowing to their mortgages, they typically conducted such renovations just after buying a property and before starting a tenancy. 4.4 Consistent motivators and barriers for green finance This section discusses the overarching motivators and barriers which encouraged and discouraged participants from using green finance options, before responses to specific options are discussed in section 4.5. Key findings: 1. Participants consistently expected low interest rates to be the most important factor in encouraging them to use a government-backed green finance scheme. 2. Some participants also expected using a government-backed scheme would give them additional protections or guarantees, compared to other means to fund upgrades. 3. There were consistent barriers to using a green finance scheme. These were aversion to debt, long repayment periods, complications when selling the property, and insufficient savings on energy bills to justify the cost of repayments. 4. The relative importance of these barriers varied across typology groups. Consistent motivators across products Interest rates and savings Participants saw the most important benefit of a government-backed green finance scheme as reducing the total amount they (or potential customers, for installers) would pay overall for green home upgrades, and potentially allowing them to make upgrades they could not otherwise afford. If the interest rates on offer from the scheme would be low enough, homeowners with relatively high income and/or savings appreciated that the scheme would allow them to take advantage of low-interest loans, and put money they would have spent upfront into savings or pensions with a better rate of return. Protections and guarantees Some also expected that a government-backed finance offer could provide greater protection for those using the scheme, for example if installation work carried a government guarantee or if compensation would be available for installation errors. 24 Green home finance consumer typologies and barriers Consistent barriers across products Aversion to debt Participants of all types, but especially the owner-occupier groups with a lower willingness to use financing products, raised concerns about taking on non-essential debt. While not all owner-occupiers were averse to debt, most were cautious. In phase one interviews, options that did not involve incurring debt such as retrofit salary sacrifice and a green savings account proved consistently popular. "I'm not looking to get into any more debt, I'm not looking to put large portions of my income or savings into this kind of thing.” (Phase 1, Owner-occupier, 45-54, EPC B) Long repayment periods Repayment periods were another barrier frequently raised by all types of participants, although for different reasons. Homeowners often cited multi-year repayment periods as a reason to be cautious, fearing that personal circumstances might change and make repayments more challenging. "The 10 year thing puts me off, like others have already said, I won't want to take a loan on unless I absolutely have to anyway." (Phase 2, Comfortable but cautious, 45-54, EPC E) Owner-occupiers with a greater willingness to take on debt, as well as landlords with larger portfolios, were less concerned by the principle of a long repayment period. They were more concerned about the build-up of interest and linked this to concerns that the debt would keep them tied to a property they might want to sell (more detail on this in the section Error! Reference source not found.). Landlords also did not think that they would be able charge extra rent for the upgrades, and so felt that having an additional extra monthly cost was a barrier. “I think 10 years is a long time as well because, so, if you need to remortgage any of the properties, who knows what the interest rate will be and how much extra it'll cost.” (Phase 2, Large portfolio Landlord, 55-64, Average EPC D) Complications when selling the property Anything that might make it harder to sell a home was disliked by homeowners who were considering selling, particularly older owner-occupiers considering downsizing in the next few years and younger families hoping to move to a larger home. This was also true of landlords who were looking to downsize their portfolio or leave the market, or who were keen to keep the option to do so available. Homeowners were consistently nervous about long-term finance options that would transfer to a new owner, fearing this would be off-putting for potential buyers. Relatedly, they felt they would be less keen to purchase a property with some kind of long-term finance attached, feeling that in this case the original homeowner would reap the reward (avoiding upfront cost) and transfer the downside onto the seller. This concern was less 25 Green home finance consumer typologies and barriers significant for those currently living in what they saw as their ‘forever home’, with no plans to move within ten years. "I don’t like that idea. For someone like me that’s selling my property – when you add something like finance to it, it will probably put people off.” (Phase 1, Owner- occupier, 35-44, EPC C) Insufficient savings on energy bills to justify the cost of repayments While acknowledging that home upgrades would bring benefits such as increasing comfort, reducing emissions, and hopefully improving property values, participants saw reducing energy bills as the primary motivation for making upgrades. Throughout the research there was consistent scepticism about whether some upgrades, particularly solar panels and heat pumps, would reduce bills enough to justify the cost. These concerns were exacerbated when expected savings for a range of green home upgrades were shown in the focus groups. Participants were consistently disappointed that expected savings were significantly lower than most repayments, reducing the appeal of green finance products. “[It’s] just way too expensive, like solar panels, it costs thousands and thousands. And you only get a small percentage of that back.” (Phase 2, Large portfolio Landlord, 55-64, Average EPC D) 4.5 Responses to green finance products This section includes participants’ responses to a range of green finance products, including how appeal varied across different groups. Key findings: 1. All participants were positive about the idea of a government-backed green finance scheme, and assumed that such a scheme would offer considerably better interest rates and terms than commercial finance. 2. There were some consistent barriers across the range of options shown, including aversion to debt, complications when selling a property, and insufficient expected savings on energy bills to justify investments in home upgrades. 3. Of the options shown in detail, secured green borrowing through a mortgage was consistently preferred across groups as the most appealing option. Overarching views of interest rates Homeowners consistently raised questions and concerns about interest rates throughout the research. There was a general concern about additional costs given the increase in interest rates in recent years, and additional concern if potential green finance products would include fixed rates leaving participants stuck with higher rates if base rates are cut, or would be 26 Green home finance consumer typologies and barriers vulnerable to future increases. These were consistent concerns across the range of green finance products shown. Interest rates were often a deciding factor for homeowners preferring one option over another. All homeowners stated a preference for lower interest rates or options that did not involve incurring debt, and when example rates were provided the option with the lowest rates was generally preferred. “They're already paying out a lot of money for the cost of it. The interest on top, I think, is just a bit of a killer…without that, probably be a lot more appealing.” (Phase 2, Comfortable but cautious, 45-54, EPC C) However, this sentiment was not universal. Some participants, in particular owner-occupiers with a low willingness to take on debt, were more averse to using their home as collateral than to interest rates. "Anything that requires collateral is a no. Having a mortgage is quite enough. I don't want to be saddled in any more debt. Particularly if it's secured, I don't like the risk of attaching collateral." (Phase 1, Owner-occupier, 45-54, EPC B) Once example rates were provided, homeowners were able to provide clearer answers about what level of interest rate was acceptable. Owner-occupiers spontaneously raised the idea that interest rates for a government-backed scheme should be significantly lower than commercially available, with some expecting that this should be 0% or 1%. Multiple owner-occupiers had previous experience buying new gas boilers with 0% finance provided by their energy supplier, which led them to expect a similar rate here. Landlords generally felt that the Government should offer 0% loans for any landlords needing to make upgrades due to MEES. “If it was 1% or something, so if not completely killing the Treasury coffers, I don't know. But it has to be a lot lower.” (Phase 2, Comfortable but cautious, 45-54, EPC D) Owner-occupiers generally felt that an interest rate of around 2% could reasonably be considered as ‘low’, with 3% appearing to be highest rate that would still be considered ‘low’ by many. All the interest rates shown in the research were lower than what is commercially available, and this was made clear within the sessions. Some examples included illustrative rates of 5% or more, which were strongly rejected across the sample. Homeowners who were more affluent and considered themselves more savvy felt certain that they could secure financing for the desired product at favourable rates without a government scheme. Additionally, some felt