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Testing options for retrofit loans

In Wales there is an opportunity to offer financial support to owner-occupiers wishing to upgrade their homes with energy efficiency improvements and low-carbon heating including heat pumps.

Welsh Government policy and funding around domestic decarbonisation is currently focused on social housing, but they are now working on policies to support private sector homes. This includes considering what publicly-backed retrofit finance support could look like, working with delivery partners such as the Development Bank of Wales.

Previous UK Government schemes have attempted to address the cost of retrofitting through finance offers (eg, the Green Homes Grant, the Green Deal) but these schemes have had low uptake. To be more successful, design and testing needs to be done before the deal is rolled out. Future green finance packages must invest in an early design and testing stage and slowly ramp up implementation.

Nesta began working with the Development Bank of Wales to explore the attitudes and needs of homeowners when it comes to funding green home improvements. This work will help build the evidence base around how green finance can and should be used. Insights from this project will help us understand what sort of product or service would incentivise which types of homeowners, what demand there may be for different types of finance products generally and what other support is needed alongside finance.

How did we do this?

We took a multidisciplinary approach to present the Development Bank of Wales with insights and options for a potential pilot for a green homes finance product.

● Polling: We polled 1,000 adults in Wales to understand what motivates people to take out home improvement finance and what people understand and believe about retrofit / green home improvement measures.

● Literature review: We undertook desk-based literature and data reviews of evaluations of other green home loans, gathering real-world examples of successes, lessons learned and reflections from across the globe.

● Prototype machine-learning tool: We developed a machine-learning tool for predicting the upgradability of homes in a particular area. Using a combination of the volume of upgradable homes and owners who could afford it, this tool could potentially inform the choice of location for any green finance pilot.

● Service mapping: We mapped the customer journey to understand what different customers may need from a product, any key dependencies and potential barriers. This in turn then informed how this product fitted into the wider finance / retrofit systems.

● User insight interviews: To get beyond what we already knew about attitudes at a population level and to ensure any product could meet user needs, we undertook in-depth interviews with some example consumers – those likely to take out a green finance product. This gave us rich detail about motivations, situations and specific needs related to the home and finance.

● Behavioural Insight Team (BIT) experiment: To maximise uptake of any offer, we needed to understand what kind of loans might be most attractive and what messages are most persuasive. BIT used Predictiv, its in-house policy testing lab, to run an online experiment with a sample of over 8,000 homeowners (2,000 in Wales) to test how different finance products and support offers affect uptake.

What next?

Beyond its primary use for the Development Bank of Wales, this work is practical and scalable and allows us to work with other organisations that are interested in green finance, to produce effective finance offers to increase take-up of green upgrades.

Headline findings have shown that there are versions of the finance product which clearly outperform generic commercial finance, suggesting that there are benefits to public bodies stepping into this space. We have also identified some finance products which are clearly more popular than others and the support that seems likely to increase take-up of these loans – such as providing trusted independent advice and guarantees.

Next steps for us will be to pull together a report which details the approach we took, lessons learned and recommendations. This will help inform public and finance bodies on how to make retrofit loans more attractive and accessible and demonstrate an approach they could take to test and develop their own finance offer, tailored to their community or target market.

If you’re interested in finding out more about this work and how this could support green finance products we’d love to hear from you. Contact Andy Regan at [email protected]


Andy Regan

Andy Regan

Andy Regan

Senior Mission Manager, sustainable future mission

Andy works within the Nesta Cymru team as mission manager for a sustainable future.

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