Although heating our homes equates to roughly 20% of Scotland’s carbon emissions, there were only around 5,000 heat pump installations last year, compared to around 100,000 gas boilers still being fitted.

To put that into perspective, we need to get from 35,000 households with heat pumps today to somewhere in the region of 2 million households by 2045. Business as usual won’t be good enough – ambitious, innovative approaches are needed.

The Scottish Government is to be commended for recognising this in its consultation on the Heat in Buildings Bill which contains regulation that is genuinely innovative, especially its centrepiece proposal – a requirement for home buyers to decarbonise their home heating soon after purchasing their home. It is a policy that breaks new ground when compared to more common approaches such as that in the UK Government’s Future Homes and Buildings Standard to ban the installation of new fossil fuel heating systems from 2035.

We think requiring installations at the point of house purchase would accelerate heat pump installations in a number of ways.

• Clean heating would boost home values. There’s already strong evidence that green technology can boost home values and regulation at the point of purchase could significantly strengthen this effect. Home sellers who have already invested in decarbonising their home heating would benefit from higher house values, enabling them to recoup some of their investment. Even those not immediately selling their home would have a better investment case for purchasing a heat pump, and potentially access to finance, if they expected it to increase the value of their home.
• Integrating heat pump installations into home renovations. Getting a heat pump installed can require some changes to the inside of your house such as new radiators or installing a hot water cylinder. Moving into a new home is often the trigger for renovations or redecoration so it makes sense to combine these changes, saving time, disruption and possibly money.
• Rolling heat-pump installations into mortgages. At the moment, there are interest-free loans available from the Scottish Government, alongside the £7,500 Home Energy Scotland grant to help lower the cost of heat pump installations. But as the market matures, it may no longer be possible or appropriate to provide these taxpayer subsidised loans universally and so being able to include the cost of heat pump installation in a mortgage is likely to be the lowest-cost form of commercial finance that can be utilised.
• Improving access to professional guidance and support. During the home purchase process, homebuyers engage with multiple housing professionals such as solicitors, surveyors and mortgage advisors creating opportunities for advice and signposting to reputable sources of further support and information, such as Home Energy Scotland. It also means that surveyors, for example, could factor heat pump installation costs into home valuations.

So how might this work in practice?

It would need to be a smooth process for the home purchaser, so most likely this will take effect through small, relative changes in property values. Houses already fitted with a clean, zero emission heat pump system would probably command a premium, perhaps as much as £10,000 - £15,000, inline with the average cost of a heat pump installation (although there are good reasons to think those costs will reduce in time).

Properties with fossil fuel heating systems, however, would likely receive lower offers. Once purchasers read the surveyor’s Home Report they will factor in having to spend money upgrading the home to meet the clean heat requirement, or alternatively an industry-agreed methodology is developed that lowers the independent valuation included in the Home Report. With the lower purchase price, house buyers can reduce their cash deposit and effectively use the mortgage borrowing rate to pay for the heat pump installation and any other related work such as insulation or underfloor heating.

Required conditions

For house prices to reflect the proposed rules, compliance will need to be monitored and enforced, most likely through the mechanisms of the EPC system and the Scottish Home Report. That way everyone involved in the market – sellers, buyers, the housing industry and the clean heat industry – can trust that buyers will genuinely be required to fit a heat pump after purchase.

It will also be really important that supporting measures are put in place. For example, there is a risk that first-time buyers are disadvantaged if they are already maxing out their cash-to-loan ratio, but the Scottish Government could overcome this by ensuring interest-free loans (which are currently universal) prioritise for first-time buyers among others.

There will also need to be good, independent advice and guidance for home purchasers, improved consumer protection and support for upskilling in the supply chain.

Exemptions

To ensure the point-of-purchase mechanism is effective, there should be two important exemptions to the clean heating requirement.

Firstly, low-value home purchases (less than £100,000) should be excluded. If the purpose of the policy is to make use of access to finance and leverage the wealth locked up in homes, it won’t be effective at lower home values.

Secondly, flats should also be exempted. While heat pumps will work in some flats, a communal or shared heating solution is likely to be the best low-carbon heating option for most, especially those without their own outdoor space.

Conclusion

There is a lot for the Scottish Government to consider to get this legislation right but the point-of-purchase regulations proposed will be effective in driving new investment in clean heating and should be taken forward. A Heat in Buildings Bill should be brought to the Scottish Parliament with this regulation included as soon as possible.

However, for this policy to work, the regulation can’t exist in isolation. Government subsidies, advice and support to homeowners will be of continuing importance, as will efforts to develop the supply chain and most importantly, action to reduce the high cost of electricity compared to gas, one of the worst relative ratios anywhere in Europe.

Our MSPs need to keep their eye on the prize – there is now a clear pathway for the clean heat industry to invest in expanding its capacity, so that it can improve and climate-proof Scotland’s housing stock. Ultimately, that means we’ll all benefit from warmer, modern, cheaper-to-heat homes that are no longer contributing to the climate crisis.