Henry Vaughan is vice president of growth at Selina Finance
With Autumn leaves falling across the UK and winter around the corner, many homeowners will be reaching for the thermostat over the coming weeks.
However, with energy bills on the up, keeping homes warm through the winter can be expensive. Alongside this, more homeowners than ever are conscious of the impact that heating homes has on the climate, with housing accounting for 20% of the UK’s carbon emissions.
Given the desire to save money on bills and protect the climate, it’s unsurprising that many homeowners are considering green home upgrades. Better home insulation and the installation of energy generating technologies like solar panels can make a real difference. NatWest’s Greener Homes Attitude Tracker in August revealed that 65% of UK homeowners recognise this, and plan to make green home improvements within the next decade. Within the next twelve months however, the figure drops dramatically to 25%.
So, what’s holding homeowners back when it comes to getting underway with a green home upgrade?
A separate survey from Uswitch sheds some more light here. It found that while 56% of homeowners understand that green improvements can reduce energy bills, the upfront costs of home upgrades remain a major concern.
With the cost-of-living continuing to bite and macroeconomic uncertainty abounding, it’s not hard to see why costs are deterring homeowners from the renewable investments needed to lower energy bills. Triple glazing your home alone can cost anywhere from around £5,000 to £14,000.
Finance innovation
Despite upfront costs, the reality is that, over time, green home upgrades generate returns for homeowners in terms of lower bills, warmer homes and increased property values. In recognition of this reality, and as a key step toward meeting Net Zero commitments, the Government has committed £13.2 billion to support a green upgrade for Britain’s housing via the Warm Homes Plan (WHP).
Alongside public finance initiatives however, it’s clear that private finance also has a role to play, to help people overcome the financial hurdles that currently stand in the way of cleaner, greener and warmer homes.
An example of the kind of innovation that’s needed is Home Equity Line of Credit (HELOC) finance. A HELOC is a type of second charge mortgage, also known as a secured loan, that allows homeowners to release equity from their property without remortgaging.
This is a hugely popular product in the US, and a market worth $411 billion. In the UK however, beyond our own offer at Selina Finance, the product remains relatively unknown.
Green home upgrades however are a perfect use case for HELOC. Why? A line of credit secured against existing equity allows home owners to draw down against that credit as and when needed and to manage spending and repayments flexibly. This is very useful when it comes to notoriously complex home improvement projects where deadlines shift and costs fluctuate.
HELOC also comes in cheaper than unsecured finance and the flexibility in repayments means that costs of borrowing can be minimised.
No place like home
So, why the slow uptake?
The UK has a long established market in homeowner finance ranging from mortgages obviously, to remortgages and second-charges. Home-ownership in the UK is also, for most, a primary source of generational wealth and something to which families and lives are intricately tied. Given this, there’s a natural caution amongst homeowners about embracing novel financial products that leverage homeownership. After all, if repayments aren’t maintained on a mortgage or other debts secured against a home, the property could be at risk of repossession.
This innate conservatism is understandable, but a lack of financial innovation risks limiting choice. It can leave homeowners with few options beyond traditional, inflexible borrowing structures. By contrast, innovative products like HELOCs, give homeowners more control over how and when they access and repay their funds.
Ultimately – as per the data above from Uswitch – a lack of financial innovation here has the potential to disincentivise vital investment in giving the UK a green home upgrade.
There is a vast store of wealth and equity locked up in the UK’s housing stock. At the same time, that housing stock is comparatively old. Millions of older houses across the UK are in desperate need of the sustainable upgrades that can save money, reduce carbon footprints and ensure homes are fit for the future. An overly conservative approach to finance is deterring investment in these upgrades, leaving too many houses drafty and expensive to maintain.
Financial innovation however has the potential to overcome some of the reluctance we see in this market and could be the key to unlocking the UK’s green home upgrade.
