Homes of the Future: How to Finance Energy Efficiency Improvements

The Vision for Future Homes 

The Climate Change Committee (CCC) has made it clear: the future of UK homes is net zero. That means 80% of homes should have heat pumps, around 10% should be on heat networks, and 10% should use direct electric heating where appropriate. Solar panels and battery storage will play a critical role in reducing energy bills, but the driving force behind this transformation must be strong government policies, financial backing, and a resilient supply chain. 

Beyond energy efficiency, homes will need to be climate-resilient. With rising risks from flooding, drought, and extreme temperatures, adaptation measures must go hand-in-hand with decarbonisation. Nature-based solutions, such as restoring wetlands to manage flood risks, will need to be integrated into housing policies. However, the reality is that the pace of retrofit work is far too slow. Retrofitting just half of the UK’s housing stock by 2035 would require around a million home upgrades each year—yet current activity is only a fraction of that. 

Breaking Down Barriers to Energy Efficiency 

1. Consumer Awareness and Accessibility 

The first challenge is awareness. If a homeowner’s gas boiler breaks down, their first instinct is to replace it with another gas boiler because it’s familiar and easily accessible. Heat pumps and other low-carbon alternatives require more planning, and many homeowners aren’t aware of the options available to them. 

There is also a fundamental issue of skills and knowledge within the supply chain. If the first person a homeowner speaks to—whether a tradesperson or energy supplier—isn’t well-versed in low-carbon heating, how can they be expected to make the switch? 

2. The Role of Government and Policy Stability 

Frequent policy changes have created uncertainty. For instance, when the UK government scrapped minimum energy efficiency targets for private rental properties in 2023, 42% of landlords who had planned to invest in energy efficiency measures abandoned their plans. 

Long-term policy clarity is essential. The upcoming Future Homes Standard is a step in the right direction, but it must be backed by clear, enforceable measures to ensure new developments are built to net-zero standards from the outset. 

3. Unlocking Private Sector Finance 

Between 65% and 90% of the funding required to meet net zero will need to come from the private sector. That means government funding should be used strategically to unlock private capital. The Green Finance Institute has been advocating for models such as: 

• Government-backed loan guarantees to reduce borrowing costs for homeowners. 

• Green mortgages and low-interest retrofit loans that make energy efficiency upgrades more affordable. 

• Property-linked finance, similar to the US-based PACE model, where loans for energy efficiency improvements stay with the property rather than the owner. 

Learning from International Success 

Other countries have demonstrated effective models that the UK could replicate: 

• Ireland’s One-Stop Shop approach: Homeowners can access integrated services that handle everything from grant applications to contractor management. Grants are deducted upfront rather than being reimbursed later, making upgrades more accessible. 

• Germany’s KfW Infrastructure Bank: Provides concessional loans and financial guarantees, significantly increasing uptake of retrofit measures. 

• France’s Tiered Finance Approach: Households receive different levels of grant support based on income, ensuring equitable access to energy efficiency improvements. 

Making Green Finance Work for Consumers 

One of the biggest barriers to uptake is the cost and complexity of financing. Even when banks offer green mortgages or retrofit loans, the uptake is low due to: 

• Lack of awareness about these financial products. 

• High upfront costs and a slow return on investment. 

• The hassle of navigating grants, financing, and contractor selection. 

To address these challenges, the UK urgently needs an independent, centralised energy advice service—similar to what already exists in Scotland and Wales. This service would guide homeowners through available energy efficiency measures, grant eligibility, and financing options in a streamlined manner. 

What Needs to Happen Next? 

Our panellists agreed that the UK needs a coordinated, long-term strategy to unlock investment in energy efficiency. Their key recommendations include: 

1. A National Awareness Campaign – To educate homeowners on the benefits of retrofitting, reducing energy bills, and improving home comfort. 

2. Cross-Government Collaboration – Ensuring energy efficiency policy is integrated across departments, avoiding past failures like the Green Deal and Green Homes Grant. 

3. A Standing Advisory Group – Bringing together industry experts to continuously iterate and improve policies, rather than launching initiatives and waiting years to assess their impact. 

4. Better Consumer Journey Design – Learning from Ireland’s model to ensure advice, grants, and financing are all easily accessible in one place. 

5. A Shift in Bank Lending Practices – Incentivising green mortgages by factoring in energy bill savings into affordability assessments. 

6. Energy Tariff Reform – Addressing the imbalance between electricity and gas prices to make heat pumps and electric heating more financially viable. 

The Role of Healthy Homes Hub 

The Healthy Homes Hub (HHH) plays a crucial role in supporting this transition, by championing best practices, sharing knowledge, and connecting key stakeholders, Investing in energy efficiency isn't just about cutting carbon—it's about ensuring that homes are healthier, more resilient, and better places to live. With the right financial mechanisms and coordinated support, the UK can accelerate towards a future where every home is warm, efficient, and affordable to run.