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Green light for loans to fund £6bn retrofit work

The Government has moved to unlock finance for the retrofitting of UK housing stock, potentially generating more than £6 billion of work for the industry over the next 10 years.

The Department for Energy and Climate Change said this week it would move to make Pay As You Save schemes possible, but despite the move there are doubts about the practicalities.

The move will mean loans, dubbed ‘green mortgages’, could be fixed against properties rather than against individuals.

Given that homeowners on average spend only 12 years in a property, it has proved difficult to secure finance for improvements that can only repay the capital over longer periods.

The move is regarded as a major step towards retrofitting the UK’s 26 million homes, but doubts remained this week over who would finance the work, who would carry it out, and whether or not the timetable is too rapid.

Any changes are unlikely to happen before the general election, but the announcement does mean that both political parties will now go into the election promising the scheme.

The UK Green Building Council said the move could result in a “refurbishment revolution”. Chief executive Paul King said: “This is a bold and welcome move. The biggest barrier to low carbon refurbishment - the upfront cost - is set to fall.

Pay As You Save is a radical scheme, which could trigger a revolution in household refurbishment.”

John Alker, also of the UKGBC, said it would not be inconceivable to see the benefits coming through to the construction sector by the end of the year, but others were less optimistic.

The timetable set out by DECC is ambitious, with work on all lofts and cavity walls to be completed by 2015 and the rollout of “harder measures as part of eco-upgrades” by 2020.

Brian Berry of the Federation of Master Builders said a key issue was demand: “I think a lot of people will be sceptical about having a debt attached to a property.”

Equally, it is unclear where the risks would lie in relation to the work carried out, and whether builders can guarantee the savings.

In relation to whether smaller builders can carry out the work at the pace and to the standards required, RICS spokesman Barry Hall said: “I don’t think the construction sector is there yet.”

He added that consumer take-up could take time, pointing out that central heating had come in over 15-20 years: “I don’t think the Government has that sort of time.”

It is widely expected that the work will be a major boost to the home refurbishment market, and that smaller builders will benefit.

Research for the FMB has suggested it will be worth between £3.5bn and £6.5bn a year.

Project skills Chief construction adviser Paul Morrell told CN recently that only the biggest contractors have the
project management skills to take it on, but few have so far expressed an interest in getting involved.

Housebuilder Keepmoat said this week it was interested in the opportunities which would come up: “We firmly believe that the Government’s Warmer Homes, Greener Homes Strategy is a natural continuation of the
Decent Homes Programme and will capitalise on its success.”

Connaught said it would look at providing the work. Another key issue will be whether or not the banks are interested in financing the loans, with problems around the risk of the proposed savings.

Several pilot schemes have been taking place over the last few months, with Sunderland-based social housing provider Gentoo chosen by the Energy Savings Trust in January for a trial scheme to deliver 50 properties by the end of the financial year, with another 50 next financial year.

But the pilot is not a direct version of the PAYS scheme; instead, consumers are offered higher rents
of about £4 or £5 more a week.

Gentoo Construction bid and investment co-ordinator Che Thornton who is running the pilot scheme said it was still a “no-brainer” given the savings on offer (usually double the rent increase), and stressed there was demand for the moves.

“It has been successful and customers have been asking about it. We are thinking of introducing our own pay as you save scheme as a result.”