One of the largest barriers to widespread heat pump adoption is the high upfront cost. Households often pay more for a heat pump than for a replacement boiler, even after the £7,500 grant from the Boiler Upgrade Scheme (BUS). Households without the required savings will have to look at financing options to cover the remaining cost.

We think that a range of financial options to pay for a heat pump are needed to suit differing needs and preferences of consumers in the UK. As part of our paying for heat pumps project, we have been looking into what these finance options could be.

Our initial research and stakeholder conversations indicate property linked finance (PLF) could be a good option for consumers that find traditional forms of finance inaccessible or unappealing for a heat pump. But what is property linked finance and how does it differ from what is already available?

Property linked finance is a long term financing mechanism which allows homeowners to take out a loan that is tied to their property, rather than as personal debt. For a homeowner installing a heat pump, this means they could cover the upfront cost and pay back the loan in monthly instalments over the lifetime of the heat pump, roughly 15-20 years.

The key advantage provided by property linked finance is its transferability. For example, if a homeowner moves home five years after installing a heat pump using PLF, the remaining years of repayments are transferred to the new buyer along with the sale of the property. This ensures that the original owner only pays for the heat pump while actively benefiting from it, removing the payback period anxiety that can hinder heat pump adoption.

Property linked finance is not currently available in the UK. The main blocker preventing PLF as an offering is the Consumer Credit Act (CCA), which ties a loan to a specific person. Introducing a legal mechanism which links the finance to the property so that the payment obligation is tied to whoever owns the land would be needed for PLF to work.

Exploratory work done by the Green Finance Institute (GFI), Lloyd’s Banking Group and NatWest put forward guiding principles of how PLF could be introduced, scaled and delivered in England and Wales. Of the options explored, there are three routes for administration that stand out as most promising; local land charges (LLC), restrictions on title, and council tax.

1. Local land charge

A local land charge is like a permanent sticky note to a property’s official government file about restrictions or financial charges imposed by a public authority. It alerts any potential buyers to the obligation attached to the land they will be purchasing. Local land charges would need to be reformed for use by PLF, but if such a legislation is passed, the registered PLF charge would act as a security to the lender and the lender could potentially prevent the house from being sold unless the new buyer agrees to take on the debt.

Because the local land charge is structured as a statutory charge on the property rather than a personal credit agreement, it falls outside the scope of the CCA. While this exclusion allows the obligation to be transferred between owners - run with the land - it creates a regulatory trade-off: the mechanism bypasses the established consumer protections and safeguards inherent to the CCA framework.

2. Restrictions on title

A restriction on title acts like a wheel clamp on a property’s legal paperwork. It is an entry recorded on the Land Registry title deed that prevents any major disposition of the property – such as selling the home, transferring equity, or adding a new mortgage – without the express consent of the lender. In the context of PLF, this restriction ensures that the heat pump debt cannot simply be ignored or left behind when the house is sold. To unlock the clamp and allow the sale to proceed, the lender requires a specific condition to be met: the new buyer must sign a Deed of Covenant, a legal document in which they formally agree to take over the remaining payments.

For residential mass adoption, this solution hits a significant regulatory dead end. The issue lies in the transfer process: when a new buyer signs the Deed of Covenant to inherit the debt, they are effectively entering into a new credit agreement. Unlike a standard mortgage, which is exempt from these rules, this heat pump loan triggers the CCA. This forces the lender to conduct full affordability and credit checks on the new buyer in the middle of the house sale. If the buyer fails these checks, the transfer cannot happen, potentially causing the entire property sale to collapse.

3. Council tax

An existing example of PLF in the United States uses the property tax model is called property assessed clean energy (PACE). In this model, the local authority acts as the intermediary, borrowing money from private markets (PLF bonds in the case of PACE) and then collects repayments through the property tax system.

This isn’t possible in the UK at the moment as council tax is an in personam liability (against the person), whereas PACE in the US is in rem (against the thing). The model would also mean adding to the responsibilities of UK councils that would have limited capability of acting as a financial intermediary.

PLF is not a silver bullet, but we think it has a role to play in giving consumers a diverse range of financing options when they are considering purchasing a heat pump. For such a linking mechanism to exist, legislators need to be convinced of PLF’s value and pass the reforms needed to enable each different format. Similarly, the legal systems for property differ across England, Wales and Scotland and a GB-wide solution will require devolved co-ordination and potentially different mechanisms.

For lenders, it could be a sizable new commercial opportunity which the GFI’s research estimates could unlock £52-70 billion for upgrading the UK's building stock. PLF has piqued considerable interest due to its potential to provide finance for lower income homes and negate concerns around payback periods. Our initial research has shown that consumers find these benefits appealing but have concerns around whether there would be a negative impact on the resale value of their homes due to the novelty of the idea and uncertainty as to what the monthly cost might be. Interestingly, the same consumers found the idea of purchasing a property with PLF attached far less concerning than selling one, with a number remarking that these concerns would dissipate if PLF became normalised.

Ultimately, we know a diverse range of financing options will be needed. So we’re looking into this, and testing these options with consumers to understand what innovative business and finance models could enable consumers to install a heat pump for zero or boiler-parity upfront cost. Keep an eye out for further updates from our paying for heat pumps work here.

If you would like to get in touch, please email [email protected]

Summary of advantages and disadvantages of PLF