How the Warm Homes Plan puts banks back at the centre of the home energy transition

Released on 21st January, the Warm Homes Plan (WHP) sets out the government’s intentions to retrofit UK homes. It contains measures catering to all households and demographics, but the area most relevant to retail banking is the low-interest loans targeted at the “able-to-pay” segment.

Able-to-pay homeowners comprise a substantial middle segment that has been underserved to date. They don’t qualify for means-tested government grant schemes, yet they do not have the levels of wealth that make home retrofit straightforward. In fact, the primary barrier to retrofit for these so-called “able to pay” households is the upfront cost!

Local authorities, who deliver the majority of retrofits, have been forced to largely ignore this segment, knowing that the financial incentives are insufficient. Meanwhile, banks have struggled to engage customers, and uptake of green financing has been disappointing.

The Department of Energy Security and Net Zero (DESNZ) will be consulting with the finance industry over the coming months to develop new green finance products.

> "Our vision for low-interest and zero-interest consumer loans is to make a range of low-cost finance solutions available for homeowners. … We will work with the finance industry to develop a range of products suitable for different consumers and different technologies. For example, some people may wish to increase their mortgage whilst other people may wish to take out a separate loan. All products will be supported by government funding to significantly lower the cost of the loans for consumers"

The evidence base for low-interest loans

All research into retrofit financing over the past few years agrees that government-backed, low- or zero-interest loans are the most effective mechanism to overcome upfront costs for able-to-pay homeowners. So the inclusion in the Warm Homes Plan of £2b towards subsidies to allow the UK finance industry to develop a new range of low-interest green finance products has been well received. Where there is disagreement, it’s over how low the interest rate needs to be (Nesta opt for for 0%, while Citizens Advice find 1% an acceptable threshold).

Relevant research:

• Clean Heat: Financing the transition, Energy UK, Aug 2025
• Homeowner Attitudes to Retrofit Finance, MCS Foundation, Jun 2025
• Maximising the uptake of green home upgrade financial products, Nesta, Oct 2022
• Homeowner attitudes to government-backed loans, Citizens Advice, Aug 2025
• Consumer attitudes to retrofit, Citizens Advice, Jun 2025

Banks in the driving seat

It is telling how absent green finance has been in the general home retrofit discourse. That is going to change, as banks establish themselves as the vehicle for low-interest green financing. A snowball effect will occur when local authorities start promoting green finance to their able-to-pay residents.

Long-term view

Of course, the opportunity goes way beyond the initial tranche of government-backed loans, as DESNZ aims to stimulate a self-sustaining market.

> "We will also establish a Strategic Partnership with the green home finance sector to help build and diversify the range of green financing options available from the broader market. This will allow government and lenders to agree a common set of goals and activities to deliver longer-term market-wide change, as finance is a vital long-term enabler of a self-sustaining mass market for home upgrades."

For the bank, there will be competition to establish itself in this new market as the go-to funder of high quality, reliable, and cost-positive home retrofits. As the energy transition gathers pace, retrofit finance will be a key differentiator for mortgage sales.

There’s a lot of work to be done. Are green mortgages, additional borrowing, or unsecured lending more effective? Is it better to issue smaller 0% loans, or larger 1% or 2%? Do customers respond better to selective upgrades with more certain yields (solar), or whole-house retrofits with larger savings (solar, battery, heat pump, EV)? Is it most effective to intervene during the home buying journey, remortgaging, or separate from the home purchase?

Banks will need quality data on uptake to quickly learn and iterate their products.

Low-interest loans are not a silver bullet

We must be careful not to be too taken in by the "rational actor" framing. People do not make perfect cost-benefit decisions - social attitudes towards debt and home energy retrofits matter.

Nationwide struggled with uptake of its 0% additional borrowing product. Citizens Advice (Aug 25) found the majority of homeowners would have concerns taking government-backed low-interest loans, particularly around what upgrades they should make, whether they will result in bill savings, and how those will compare to the cost of repayment. A worrying 84% wanted proof of bill savings before borrowing.

MCS, Citizens Advice (Oct25), and UK Finance all identify a “save first” culture for home improvements, with declining interest in traditional loans. Retrofit is not mentally categorised like cars or kitchens - it doesn’t feel worth it, although UK Finance identified early signs this may be shifting.

Education, motivation, and free money

The research points towards grants sitting alongside low-interest loans as an important motivator. The Warm Homes Plan delivers on this for heat pumps, with the continuation of the Boiler Upgrade Scheme (a £7.5k grant for a heat pump). For solar, cashback offers from the bank can do the same.

By which point, this is becoming a non-trivial scenario for the customer to get their head around! Bank cash back + a heat pump grant + a low-interest loan + their own contribution + predicted bill savings + repayment costs = a monthly net position and a payback period, all of which is dependent on the set of upgrades they opt for and the specifics of their home - and all premised on trusting electrotech to deliver on its hype.

This is why banks need high quality educational and motivational user journeys to model the options and visualise the return-on-investment, followed by proactive monitoring and support to guide the customer through to their decision.

Cogo’s Home Energy Platform

Cogo’s Electrification solution empowers banks to become trusted partners in their customers' energy transition to a low-cost, low-carbon home. Our platform creates a seamless journey by combining educational content, personalised home energy calculations, and access to a vetted installer marketplace. It builds motivation with clear financial projections that combine upfront costs, grants, and loans into a single payback period. Whether a customer is ready to install today or just starting to explore, our digital tools and ongoing concierge service simplify the complexities of retrofit, finding the right path for every home.

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