The largest barrier to heat pump adoption is the high upfront cost, which often isn't fully covered by the £7,500 BUS grant. This is a long-term barrier, as installation costs are unlikely to drastically reduce and subsidies could reduce in the future. 

A significant number of households will receive heat pumps via their housing provider or means-tested grants like ECO4, but ineligible households will have to rely on savings or loans. We know that some households currently installing heat pumps, typically considered early adopters or innovators with more access to wealth, are already having to borrow. This implies that the need for financing options will increase for those further down the adoption curve. 

This project explored how innovative business and finance models could enable consumers to install a heat pump for zero upfront cost. We identified potential models, assessed their attractiveness and viability for consumers and lenders, and proposed solutions for the barriers and frictions uncovered.

Our overarching goal is to enable households to access affordable finance that they otherwise could not. To achieve this, we have identified three potential routes to impact:

• Working to influence government and policy, both by tackling existing policy barriers and by proposing new, proactive finance schemes.
• Derisking and accelerating the private market by sharing intelligence with the industry and by developing or proving new, adoptable financial models.
• Stimulating consumer demand by providing clear advice to increase public access and understanding of finance products.

We believe enabling zero upfront cost options can make a tangible difference in heat pump adoption, helping to meet the goal of 420,000 installations per year by 2028. We believe that current finance options are not accessible for many households. Providing finance to eliminate the upfront payment is a critical enabler for this transition. 

This project focused on what successful models could look like. We identified what is most attractive to both consumers and lenders, got a better understanding of the barriers to implementation, and looked at ways to ensure any proposed model offers good value and strong consumer protection.

Our initial scoping phase involved desk-based research, stakeholder conversations, and an internal workshop. 

This foundational work helped us surface the current challenges, identify potential finance models that "could" work, and understand the primary barriers making them non-viable. 

During our scoping we identified three focus areas to explore further:  

1. The role of insurance and assurance bodies in de-risking litigation concerns for lenders. 
2. Property linked finance is not currently viable. We want to pinpoint what regulatory changes would be needed, and assess the role it could play for different consumer segments.
3. How reducing the price of electricity could enable novel business models. 

We explored these focus areas with literature reviews, further stakeholder engagement and user testing with consumers.

Our summary findings include:

• Consumers find features of less common models appealing enough to pick them over conventional loans and mortgages.
• Properly linked finance is not a silver bullet to the barrier of upfront cost, but could form part of an accessible range of options to suit the needs of a diverse range of consumers.
• Assurance and insurance are seen as appealing by lenders and could provide them with confidence to mobilise more capital for green finance.
• Simple products with low/zero interest and shorter terms were the most appealing features of the models we tested.
• The role of mortgage brokers has potential for greater impact.
• Consumers have low awareness of heat pumps and the Boiler Upgrade Scheme.
• The cost of electricity affects the interest attached to finance products.
• The cost of electricity also impacts novel business models deployment.
• Installers need to be FCA accredited to advise consumers about financial products, or to be an appointed representative of an authorised firm.

Read more about this work in our report.