Home Energy Efficiency Equity Loan pilot - call for evidence on potential national rollout: analysis of responses
Independent analysis of the responses to the call for evidence on the potential to develop an Equity Loan Scheme as part of the suite of support schemes for the decarbonisation of Scottish homes. Read the call for evidence: https://www.gov.scot/publications/equity-loan-scheme-call-evidence/pages/1/
Views on the Equity Loan Pilot
Question 1: What is your view on the use of equity in people's homes in order to support the decarbonisation of buildings and the improvement of energy efficiency as a means to improve wellbeing and support independent living?
Thirty consultation respondents provided an answer to Question 1. Most endorsed the use of home equity to support decarbonisation and energy efficiency and described the benefits of this approach for individual homeowners and for Scotland more broadly. However, some raised concerns about equity release models, including how to support applicants and whether the pilot has sufficient reach.
Support for using equity to support decarbonisation and energy efficiency
The most prevalent theme in responses to Question 1 was the approval of the use of home equity to support decarbonisation and energy efficiency efforts.
Many respondents expressed general support for an equity loan scheme, describing it as a 'useful' and 'welcome' approach. They described practical benefits, noting that it will allow homeowners to both improve the condition of their properties and make their homes more energy-efficient. Some expressed support for the scheme's focus on the decarbonisation of buildings. A few respondents felt that such actions have the potential to make a meaningful contribution to climate change mitigation.
"Reducing emissions from our homes and buildings is one of the most important things we can do to help end Scotland's contribution to climate change…Providing an additional financial route for homeowners to make energy efficiency improvements to their homes and decarbonise their heating systems can make a contribution towards the Scottish Governments plans to reach net-zero by 2045." (Propertymark)
Some respondents said an equity scheme could improve physical and mental health and wellbeing by creating healthy, warm and comfortable living environments with healthy air temperatures, humidity levels, noise levels, and improved air quality.
"Many older and disabled people in Scotland live in fuel poverty and poor housing conditions. This impacts on their health and wellbeing. The loan scheme as it stands can make a significant contribution to the future wellbeing of older people in Scotland." (Care & Repair Scotland)
Respondents also noted that equity schemes could tackle fuel poverty by introducing more cost-efficient measures into peoples homes.
Several respondents described equity release schemes as an opportunity for homeowners who otherwise would not have access to sources of funding to pay for repairs or decarbonisation works on their property. Examples included:
- those considered 'asset rich, cash poor' who do not have savings or access to grants and schemes such as Warmer Homes Scotland;
- low/fixed income households (e.g. pensioners) who do not have access to other forms of borrowing;
- people who do not qualify for other schemes or grants due to high income.
Some respondents highlighted particular benefits for elderly or disabled homeowners. They suggested the scheme would enable these groups to carry out repairs and energy efficiency improvements, allowing them to remain living independently in their home for as long as possible.
"People without significant regular income but who hold equity in their property can access this scheme to improve their homes, which allows them to live more comfortably in their existing homes, rather than needing to find alternative accommodation. This coupled with the repairs element of the Equity Loan can be seen as a benefit unique to this scheme which will help to improve wellbeing and support independent living." (Energy Saving Trust)
Two respondents valued an equity loan scheme as a way for homeowners to improve the condition of their property without accruing conventional forms of debt or committing to monthly repayments. Another reflected that the loan terms seem 'very fair' for homeowners.
One respondent noted that this scheme might help minimise any backlash against the introduction of regulation for home energy efficiency standards in Scotland by offering an affordable route to finance decarbonisation measures.
Concerns about the use of equity schemes
A range of risks and concerns about using the equity in people's homes to support decarbonisation was identified in responses, including comments suggesting that:
- homeowners may not have the best or most appropriate solutions recommended or installed;
- vulnerable households may not understand the debt behind the scheme;
- the scheme leaves out those without sufficient equity in their homes;
- the concept of losing a percentage of the value of your home on resale could be unattractive and limit interest in the scheme;
- the scheme is over-reliant on housing market growth to make it financially viable;
- the Scottish Government should not offer schemes that put people into debt.
A few respondents called for more clarity about the scheme's aims, noting confusion about whether the focus was on decarbonisation and Net Zero; or tackling fuel poverty in Scotland.
Question 2: If you have direct experience of the Equity Loan pilot, please provide views or evidence of the impact of the loan product and support provided.
Fifteen consultation respondents confirmed they had direct experience of the Equity Loan pilot and answered Question 2. Some had positive experiences, describing benefits arising from their participation in the Equity Loan pilot and their views on the future need for the scheme. However, others described negative experiences, having faced challenges with the legal and administrative processes involved. Many agreed on the importance of having a support or handholding service in place to support loan holders.
A few agencies involved in the delivery of the pilot noted in their responses that households who took part in the Equity Loan pilot were pleased with the results of the process and what the pilot had enabled them to do to their property. This feedback aligns with the findings from the feedback survey of loan holders, where the majority confirmed that installing new energy efficiency measures or heating solutions into their property had a positive impact on their wellbeing. Loan holders provided a variety of reasons behind this change, including having a more warm and comfortable living environment and being less stressed about the condition of their property.
Other benefits arising from the Equity Loan pilot were identified by homeowners who participated in the feedback survey. These included a reduction in their heating costs and having a more wind and watertight home.
Some respondents described the need for the future scheme, suggesting that without it, many homeowners would not have any other way to improve the condition or energy efficiency of their homes.
"This was the only way we could afford an air source heat pump." (Individual)
One respondent noted that in their experience, most households who accessed the pilot were living in properties in a state of 'extreme disrepair' and had few other options for financial assistance.
Many loan holders who responded to the feedback survey echoed this view, noting that the Equity Loan provided funding for repairs or energy efficiency works to which they did not otherwise have access.
Value of the support service
A majority of respondents and stakeholders who took part in the Call for Evidence webinars stressed the importance of having a support or handholding service to support loan holders throughout the Equity Loan process. They highlighted that many of the eligible households for the scheme are elderly and/or vulnerable and would struggle to complete the complex process without a handholding service.
"I think hand holding is essential for this scheme. You are dealing with vulnerable clients; you are dealing with clients who can't do everything online or send things via email. You need someone to go out and see people. So I think that's an essential going forward." (Webinar participant)
This feedback was reiterated in the feedback survey of loan holders; many commented on the value of and positive experiences with the support provided by Care & Repair.
Challenges with the legal and administrative process
Many participants in the consultation, webinars and loan holder feedback survey with direct experience of the pilot described challenges relating to the administrative and legal process. It was described as 'extremely time-consuming', 'complex', challenging' and 'slow and cumbersome'. Specific issues included:
- the extent and complexity of documentation;
- the length of time the process took;
- delays in day-to-day communication;
- loan holders incurring extra charges;
- documentation going missing;
- errors in paperwork.
Participants across all strands of the Call for Evidence (consultation, webinars and loan holder survey) reported that the complex legal and administrative processes caused delays in completed work. Those who took part in the loan holder survey felt there was room for improvement in timescales associated with the Equity Loan piliot.
Respondents described the negative impacts of difficulties or delays with the legal and administrative process, which affected the well-being of some loan holders and, in a small number of examples, soured relationships between agencies and local contractors. A few observed that delays in some cases meant that quotes and home reports expired; they had to be reissued before work could begin.
Some respondents recognised cases where delays were inevitable, for instance, shared ownership, complex legal circumstances related to title deeds and discharge of mortgages.
In responses to the Call for Evidence and during the stakeholder webinars, representatives from agencies involved in delivering the pilot described challenges in working together, including:
- a lack of consistent and clear communication from different parties;
- difficulties in agreeing and complying with timescales;
- a lack of clarity over the division of resources and responsibilities.
Question 3: Do you have views on the eligibility and scope of the pilot as it exists now?
Twenty-nine respondents provided an answer to Question 3. While some agreed with the current eligibility and scope of the pilot, others felt that council tax banding should not be used to determine eligibility. Others supported expanding the eligibility criteria in future to include as many households as possible.
Concerns with using council tax banding to determine eligibility
A major theme among responses to Question 3 (and the corresponding question in the Call for Evidence webinars) was concern about using council tax banding to determine eligibility for the scheme. Many respondents felt that council tax bandings are not an effective indicator of wealth and access to capital. As a result, using it to determine eligibility could restrict access to the scheme for those who need it most, particularly elderly and vulnerable households.
"Restricting eligibility to council tax banding A-C properties could miss a section of society that have saved hard to be able to purchase a larger property but who now are elderly, vulnerable, in fuel poverty and in most need of support." (Organisation, anonymous)
"There may be a large number of older vulnerable households included within council tax Bands D - H that may be unable to finance energy adaptations within their home without assistance." (Age Scotland)
Others felt there is nuance in the type of households and housing stock included in different council tax bandings across local authorities and between rural and urban areas. A few suggested that the council tax band criteria should be set on a local authority basis.
Some respondents suggested broadening the criteria to include council tax band D.
"I believe the Equity Loan scheme could be extended to properties within council tax Band D as the difference between tax bands C and D are minimal, and the Government could be missing out on potential clients who could access the scheme who require financial assistance to improve the energy efficiency of their properties." (Individual)
Others advocated for the scheme to be open to owner-occupiers in all tax bands. Two noted that, given the high costs associated with installing energy efficiency measures, even households in more comfortable financial positions may still require financial support to fund decarbonisation works to their property.
Support for the current criteria
Conversely, some respondents expressed support for the current eligibility and scope of the pilot, describing it as 'appropriate', 'ideal' and 'inclusive'. They felt that including households in council tax bands A-C and those receiving state benefits was a fair way to determine eligibility for the scheme.
"We agree with the scope for eligibility. This provides a good balance between enabling 'cash poor' customers to access energy efficiency measures while also not making the scope so broad that people might take on an Equity Loan when other savings, consumer debt or mortgage funded measures may be more appropriate." (The Building Societies Association)
One respondent welcomed the inclusion of the eligibility criteria around people with disabilities.
Alternative criteria suggested
A few participants suggested alternative ways to determine eligibility for the scheme. During the Call for Evidence webinars, two stakeholders referred to the eligibility criteria for Warmer Homes Scotland, which considers the square footage of a property, suggesting that a metric like this may be a more effective way to determine eligibility and make the scheme more widely accessible to property owners throughout Scotland. Another suggested having criteria in place to only allow people over the age of 55 to apply for the loan, given younger people may not have enough equity in their homes to participate, and one suggested using criteria around household income.
One respondent suggested using the Standard Assessment Procedure (SAP) rating on the Energy Performance Certificate (EPC) to determine eligibility, where only those with a score of D or less could apply for the scheme. The SAP methodology assesses and compares the energy and environmental performance of dwellings. EPC ratings divide dwellings into bands based on costs; the higher the number, the lowing the running cost. A score of D would be 55-68 SAP points; a score of G is 1-20 SAP points (least energy efficient).
Inclusion of landlords
Few commented on the inclusion of landlords in the eligibility criteria for the scheme. Most stakeholders were generally supportive of only allowing landlords with two properties or less in their portfolio to apply for the scheme. However, a small number of respondents felt that landlords who have more than two properties in their portfolio should be permitted to access the scheme, contending it was important to improve the energy efficiency of homes within the private rented sector. Two felt that limiting access to the scheme in these cases could have unintended consequences for the tenants living in privately rented homes, many of whom could be experiencing fuel poverty.
A few respondents suggested that landlords with up to three properties in their portfolio should be able to participate in the scheme, as this would be in line with other Scottish Government programmes like the Area Based Scheme (ABS) .
One respondent firmly believed that landlords should be excluded from the scheme and made to use other funds to make their properties more energy-efficient.
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