Property-linked finance could unlock up to £70bn of private investment into energy efficiency upgrades in the residential market alone, accelerating the decarbonisation of the UK’s buildings, the Green Finance Institute has claimed.
Working in partnership with Lloyds Banking Group and NatWest Group, the GFI has published a report outlining the potential for a fresh green finance mechanism – property-linked finance – to channel billions of pounds of private investment into sustainable retrofit across the UK.
The report sets out guiding principles and key steps for how property-linked finance should be designed and launched in England and Wales, including calling for enabling legislation from the government and the establishment of pilot programmes, initially in the commercial sector.
Research from the GFI estimates that the new green financing solution has the potential to catalyse between £52bn and £70bn of private investment into decarbonising the residential market across England, Scotland and Wales.
An estimated investment of £360bn is needed to decarbonise the UK’s commercial and residential buildings by 2050 – an investment that cannot be met by the public purse alone.
The GFI reckons property-linked finance can offer a vital new mechanism to crowd in private capital and help achieve the necessary investment into the installation of low-carbon technologies, energy efficiency and climate resiliency projects in the UK, with the potential to scale globally.
It says the mechanism enables access to affordable and long-term funding for environmental improvements for buildings by linking the finance agreement to the property, rather than the owner. This means the payment obligation can transfer to the new owner when it is sold.
Property owners would only pay for energy efficiency measures up until they sell their property, or the measures have been paid off, while new buyers benefit from a more energy efficient, potentially more desirable property, in return for continuing to make regular payments towards the upgrades. The mechanism would work both for homeowners as well as owners of commercial properties.
In the US, Property Assessed Clean Energy, a version of property-linked finance, has enabled the investment of more than $16bn (£12.4bn) of capital in making 371,000 homes and commercial buildings greener and more resilient, according to US trade body PACENation.
Eloise Henderson-Day, property-linked finance programme director at the GFI, said: “The Green Finance’s Institute’s vision is to create a thriving market that rapidly deploys capital towards the decarbonisation of UK buildings. Working with Lloyds Banking Group and NatWest Group, we have developed a ‘greenprint’ to launch and grow property-linked finance in the UK, which has the potential to unlock billions of pounds in investment to retrofit our buildings and increase their energy efficiency and resilience.”
She added: “Successfully introducing property-linked finance in the UK will require a collaborative approach across the entire built environment ecosystem. We are working with financial institutions, policymakers, regulators, local authorities, property owners and experts, to ensure financial, real estate and retrofit industries support the evolution of this innovative green finance solution, but more players are needed. By working together, we can create a robust, flexible and widely adopted property-linked finance market in the UK and beyond, driving the transition to a more sustainable future for all of us.”
Andrew Asaam, homes director, consumer lending, at Lloyds Banking Group, said: “Exploring innovative solutions to increase investment and interest in energy efficiency initiatives is a positive step forward in helping the country meet its 2030 goals. However, there is still much work to do, and it will take the ecosystem working together to ensure ambitions are realised.”
Lloyd Cochrane, head of mortgages at NatWest Group, added: “We are supportive of measures that attract private investment into solutions that will accelerate energy efficiency initiatives. The investment required to meet UK decarbonisation targets can’t be met by just one part of industry or government, so working like this to outline the opportunities and challenges that need to be addressed to make alternative funding concepts a reality is really important.”
The GFI said it was now working on a roadmap for the enabling conditions needed to drive the success of the property-linked finance scheme and would be working with the market to develop a commercial property pilot in the UK.
Read the report: A Greenprint for Property Linked Finance >>
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