Mortgage market has ‘critical’ role in decarbonising heat

Utilities should work with mortgage and insurance providers to pinpoint moments when householders and drivers are most likely to respond to incentives to switch to low-carbon options.

This was the view of a panel of senior industry figures brought together by Utility Week and Capgemini for a webinar to discuss ways of engaging customers on the net-zero journey.

The government’s Heat and Buildings Strategy, released earlier this week, said mortgage lenders and other financial institutions would have a “key role to play” in incentivising people to switch to low-carbon heat.

Simon Maine, Ovo’s director of corporate affairs, told the webinar that mortgages could be a “critical” tool in driving behaviour change because they target a “particular moment of a home’s liftetime”.

He explained: “One of the great levers in human history to move behaviour is the financial incentive. We know other things play a role but we also know that without financial incentives, it will never happen.”

However, he added: “Even if I can get a capital grant for a heat pump, even if the operating cost is cheaper, even if I can get the right plumber and electrician, I still might not get it done – because it’s a hassle.

“From the conversations we have and the market research we do, we know that can be a big barrier to change. So you’ve got to insert yourself at the moment when the hassle is least. In my mind that’s when the house is empty – moving home, moving tenants or indeed renovation.

“That moment may only happen once every ten or 20 years but if you’re going to turn over the capital stock you can’t just willy nilly throw the incentives around at different times. You’ve got to concentrate them at the time the particular owner or manager of the property is most likely to take advantage of them. That’s why I think the mortgage issue is so critical because it dovetails with that moment of change – it’s that financial incentive meets behavioural incentive all at once.”

This view was echoed by Rachel Fletcher, director of regulation and economics at Octopus Energy, who said: “This is where corporates really can lead the way if they are really getting the climate change bit between their teeth. That is leading a number of high street banks to think about their mortgage and insurance products.

“There’s been a big debate about EPC ratings and I do wonder whether we might see some mortgage products come out to help people improve the fabric of their homes.”

Alain Bollack, vice president at Capgemini, said the insurance market will also inevitably have to be evolve to factor in the different behaviours of electric vehicle (EV) drivers. He pointed to a recent study which showed that EVs were about half as likely to be involved in an accident as petrol or diesel ones. As insurance premiums become more competitive for EVs, this creates another incentive switch, Bollack said.

Meanwhile Mark Crabtree, engineering director at South West Water said:” We have great technology solutions but the broader landscape also has to be right, whether that’s in terms of regulation, legislation or how markets work more widely. There’s a whole eco-system that needs to be in place.

“Why is our car park full of hybrid cars? It’s because of the tax benefits that come with them. That incentivises change.”

The panel also discussed the Heat and Buildings Strategy more widely, with Fletcher saying that the detail around how the £5,000 grants for installing heat pumps for homeowners are issued would  be key.

She said: “We’ve seen the failure of the Green Homes Grant but also the success of the EV grant, which is provided at the point of purchase and is very straightforward for the customer. We would love to see the learnings from EV support being brought into low-carbon heating so that when you need to replace your boiler you don’t have to go through a lengthy process to get access to that financial support.”

You can watch the full discussion for free, simply by registering here.