Will Zero Percent Interest Green Borrowing Incentivise the Private Sector?

by Floyd March

While the social housing sector has strong government support to decarbonise the UK housing stock through schemes such as the SHDF, private landlords and homeowners have often relied on small grants to do so.

The uptake of these grants has been mixed over the years, with the Green Homes Grant proving particularly difficult. 52% of homeowners' voucher applications were rejected or withdrawn, and 46% of installer applications failed.

Looking to address this, Nationwide Building Society has recently reduced the interest rate on its green additional borrowing products to 0%. This policy announcement has been widely accepted and it will be interesting to track the decisions other banks may follow in response.

0% interest products for green home improvements

Beginning from 01 June 2023, the new 0% product is available for up to 5000 households with a current Nationwide mortgage, and applicants will be able to borrow between £5000-£15000 up to a maximum of 90% LTV for either a two or five-year term.

Policies such as this from the private sector help raise further awareness of the need to retrofit homes and inform the public that financial support is available. Many landlords and homeowners were not aware of the government help available through the Green Homes Grant.

Removing the interest involved in the products is one of the best ways to incentivise members to make green home improvements. This financial help coupled with recent reports stating green home improvements can increase the value of a property could help make the breakthrough required to decarbonise the UK housing stock as a whole, not just by sectors.

Maximum of £250 repayments offer is most affordable product yet

Breaking down the savings people could make, a member using the existing product would be paying 3.89% for a £15000 loan over a five-year term. Monthly repayments on this product would be £275.50.

The revised product would see payments of £250 per month, saving over £1500 over the term of the agreement.

There are some conditions for the agreement set out by Nationwide including the fact that the loan must: “Be used to fund non-structural, energy-efficient home improvements, such as solar panels, air source heat pumps, window upgrades, boiler upgrades, cavity wall insulation, loft insulation or an electric car charging point.”

Local installers could reap the benefits of this support

The product also looks to include local suppliers and contractors to install the home improvements, which is a tertiary benefit of the product. Government contracts can often go to tier-one contractors and larger suppliers, so private sector investment could be used more effectively for local workers.

The old version of this product was withdrawn from sale at the end of May 2023, which marked the time for a shift in the attitudes of incentivising homeowners and landlords to make the changes needed to reach net zero targets.

Henry Jordan, Director of Homes at Nationwide Building Society, said: “Residential properties are one of the biggest causes of emissions and there is a need for more to be done by government and business to encourage households to act.”

A key barrier to making homes more energy efficient is not only the upfront costs associated with retrofitting but also the payback period of making such changes.

Expanding on this point, Henry said: “It’s clear to us that only meaningful incentives will help shift behaviour. So, by launching this latest product for up to 5,000 of the Society’s mortgage holders, we can test and understand whether offering zero per cent interest will encourage members to make the necessary green home improvements, where the costs of finance may have, until now, discouraged them.”

Rounding up, Henry explained: “As a mutual, we’re committed to returning value back to our members, which is demonstrated by this being the first time we’ve taken this approach. Creating a greener society is a shared goal and we need to make it as easy as possible for households to play their part.”

Henry Jordan Director of Homes Nationwide Building Society