Written evidence submitted by the Nationwide Building Society (DHH0055)

  1. What has been the impact of past and current policies for low carbon heat, and what lessons can be learnt, including examples from devolved administrations and international comparators?

The ‘Nordics’ have a good track record on decarbonising heat and general technological sophistication and sustainability in the built environment.

For example, Sweden made the switch from oil to district heating in the 1990s, and in doing so have drastically reduced their contribution to the emission of greenhouse gasses.[1] In 2017 90% of district heating was derived from renewable and recycled heat.[1] Sweden’s second largest city, Gothenburg, has implemented a district heating network which heats 90 percent of the apartment blocks in the city as well as 12,000 stand-alone homes.[2]

However, it is not enough to look at the decarbonisation of heat in isolation. Ensuring the buildings retain heat properly is equally important. As Danish homes require heating for over half of the year, the Danish Government has put a strong focus on creating more energy-efficient buildings. Regulation has a role to play here. The Danish implementation of the EU’s EPBD (Energy Performance of Buildings Directive)[2] Scheme pushed “the Danish building industry in an ambitious direction, and has ensured new buildings to be highly energy efficient at a cost-efficient level. It is also tradition that future requirements are evaluated before they become final and binding.”[3] As a result, Danish companies are working to make Danish structures more sustainable by creating energy efficient windows, heating, indoor water sources and insulation.

Moreover, in Norway, 95% of new heating systems are heat pumps – over one third of all households are heated this way. Conversely, only heat pumps represent only 1% of new heating systems in the UK.[4]] More on Nationwide’s thoughts and actions with regards to air source heat pumps in response to question 3. 

  1. What key policies, priorities and timelines should be included in the Government’s forthcoming ‘Buildings and Heat Strategy’ to ensure that the UK is on track to deliver Net Zero? What are the most urgent decisions and actions that need to be taken over the course of this Parliament (by 2024)?

We believe that the swiftest route to net zero will require the public and private sector to work in concert with one another. Regulatory reform and strong policy-making can and will drive investment and change in behaviour from business and consumers.

The early adoption of the Future Homes Strategy would be a great place to start. Nationwide welcome the Government’s ambitions to build more homes – but it is vital that new housing stock quickens the path to net zero, rather than obstructing it.

To meet our net zero commitment, it is likely that UK housing will need to predominately reach EPC A. At the current rate of construction (c. 178k a year) with no change to building regulations we anticipate the UK will continue to add a further c5.5m EPC B and below homes to the housing stock by 2050 and c. 300k of these are likely to be EPC D and below. If we are to reach net zero, the standards which new homes are built to, and how quickly those standards are introduced, are also an essential part of the consideration.[5]

Homes that are not built to the highest standards now will merely create expensive retrofit bills in the future. We estimate that – at present – a further c. 800,000 fossil fuel powered homes will be added to the UK housing stock over the next 5 years.[6]

We hope to see the following in the forthcoming Heat and Buildings Strategy:

-          A review and regulatory reform with a view to encouraging better, more joined-up work between energy-providers and builders and developers working in housing delivery. This should be with the explicit goal of ensuring new and existing homes meet improved energy-efficient standards and rely on cleaner power.

-          Consider the introduction of incentives in the tax system to support retrofitting, including VAT relief on retrofitting. Consideration should also be given to commissioning an independent review of council tax to explore how linking taxation to a home’s energy efficiency can incentivise green home improvements. However, this would have to take place on the strong proviso that any resultant change does not penalise those on low incomes, or those who are at risk of fuel poverty.

-          Improvement in the EPC ratings process (see response to question 4 below).


  1. Which technologies are the most viable to deliver the decarbonisation of heating, and what would be the most appropriate mix of technologies across the UK?

Improving the energy efficiency of a building – residential or otherwise – requires a ‘whole-home’ approach. Improved insulation and double-glazing will reduce heat wastage, but it is better still if the heat in question is from a sustainable, decarbonised source.

Nationwide looks to lead by example - delivering 239 homes in a not-for-profit housing development, Oakfield, in our home-town of Swindon. We are planning with sustainability in mind, and as such have committed to the following:

-          The development will be off-gas, instead using air source heat pumps in place of gas boilers. In their lifetime, air source heat pumps produce 20% of the carbon emissions gas boilers do.

-          Solar panels – when combined with air source heat pumps, this renewable energy technology can substantially reduce C02 emissions and energy bills.

-          All homes will be battery-ready so that occupiers can add a battery and store energy from their panel system, if desired.

-          At the end of the process, all the homes should be EPC A-rated. 

We would be delighted to work with Parliamentarians and the Government to explore how regulatory reform in the built environment could encourage the roll-out of similarly high standards across the sector.

The mix that Nationwide Building Society has opted for at Oakfield (a combination of air source heat pumps and photovoltaic panels) will reduce CO2 emissions to 186kg per year.[7] Compared to a traditional boiler which emits, roughly, 1,600kg per year (based on a 3 bed home) proves that when implemented the savings to the environment are hefty. There are more extensive – and expensive – technologies available, but the mix outlined above was determined by the need to balance energy efficiency against other factors, such as availability of the technology in question, design, and – crucially – cost.

  1. What are the barriers to scaling up low carbon heating technologies? What is needed to overcome these barriers?

Nationwide recently hosted a virtual roundtable where we discussed the Future of the Green Home. Our response to this consultation is informed, in part, by this, as well as by the extensive research undertaken whilst planning for Oakfield. 

There are structural issues that create barriers. For example, EPCs and other means of measuring energy efficiency. Recent analysis of our mortgage book to establish our scope 3 emissions (which will be reported in our Annual Report and Accounts in May 2021), has shown the limitations of EPC ratings. Circa 40% of our mortgaged properties have no EPC and so we have had to build internal models to extrapolate what their characteristics might look like. It is worth noting that EPC data is valid for 10 years and so is unlikely to capture the impact of retrofitting initiatives, meaning it isn’t an accurate data source for capturing changes to housing stock.

In addition to this, EPC data sets for England and Wales are not stored with those for Scotland and Northern Ireland and in addition there are differing methodologies in place for Scotland which reduces the ability to provide informed analysis of the entirety of the UK housing stock.

To truly capture the carbon impact of UK housing we would recommend initiatives to appropriately share actual energy consumption with financial services providers at an individual household level would lead to greater transparency and more informed decision making. With regards to the forthcoming heat strategy, it is worth noting that the EPC methodology also does not appear to incentivise electric heat sources due to the increased Kw/H cost of electricity over oil / gas. If EPC is to remain the primary data source we would suggest the methodology needs to be revised if it is not to continue producing a reliance on fossil fuel heat sources.

To this end Nationwide is an active participant of PCAF, the carbon accounting initiative, in the UK.  PCAF is considering how carbon emissions can be measured on balance sheets.  We are taking a keen interested in homes on the mortgage book in this context and will work with other financial institutions towards a common methodology for measuring carbon emissions.

Moreover, the availability – or lack thereof – of skilled installers is a barrier. This includes availability for installation of low carbon heating tech and the ongoing maintenance and service of those systems. Anecdotally, colleagues have commented on the challenge this has presented when attempting to make use of the Government’s otherwise very commendable Green Homes Grant scheme. In Wiltshire - close to where Nationwide is headquartered in Swindon there were only 16 accredited suppliers at launch from the Government website, and 3 of these were insolvent when the scheme launched. There is the risk that if Government and industry are successful in stimulating the appetite for green products, the skilled workforce necessary to meet demand may not be there.

Our own endeavours show that clarification regarding what works – and who could fit it – is a barrier. We have seen this at Nationwide with regards to the launch of our own ‘Green Additional Borrowing’ product, which was launched in March 2020 to help existing members with a Nationwide mortgage borrow more to make energy efficient improvements to their homes. It provides a lower initial interest rate, comparative to our standard additional borrowing products, for the initial fixed period. Members can borrow between £5,000 - £25,000 and will be eligible for the rate discount provided they use at least 50% of their new advance for acceptable green purposes. This includes energy efficient home improvements such as solar panels, air source heat pumps, window upgrades and traditional insulation.

To date, we have received less than 200 applications for our Green Additional Borrowing product, suggesting that financial incentives alone provided by mortgage lenders will not encourage enough retrofit activity and behavioural change to make homes more energy efficient and reduce carbon emissions. There remains significant barriers to retrofitting alongside the availability of financial products – it needs to be easier, cheaper and more straight-forward for consumers to retrofit their homes and make them more energy efficient.

We would like to see the government support the installation of low carbon heating tech further through policy and regulatory changes which we’ve discussed throughout this submission, as well as more being done to develop the necessary skills pipeline, and to offer clarification to consumers with regards to what products and services are suitable for a green home.


  1. How can the costs of decarbonising heat be distributed fairly across consumers, taxpayers, business and government, taking account of the fuel poor and communities affected by the transition? What is the impact of the existing distribution of environmental levies across electricity, gas and fuel bills on drivers for switching to low carbon heating, and should this distribution be reviewed?

Encouragingly, BEIS’ own research suggests that renewable energy is on course to be half the price of gas-generated electricity by 2025 – meaning that the decarbonisation of heat can also help to tackle fuel poverty.[8]

We note that a great deal of the success of renewable energy providers such as Octopus lies in their ability to make it clear to consumers that cutting emissions and saving money are not mutually exclusive aims. 

In that regard, greater onus should be placed on industry to encourage consumers to ‘go green’ – Nationwide have earmarked £1bn in low interest ‘green additional borrowing’ products to encourage members to ‘green’ their homes. The Green Homes Grant is a good initiative, but must be regarded as the first step – a necessary intervention that will stimulate consumer demand, and encourage supply from lenders and those working in the delivery of green products: whether loans or retrofit services.

However, this must be encouraged by rigorous regulation, to prevent the ‘greenwashing’ of otherwise conventional products and services. With this in mind, it is very encouraging that the Chancellor recently announced that a new green taxonomy will classify what is meant by ‘green’ products and services. Not only should this encourage green investment, it should also prevent ‘greenwashing’. Moreover, the ambition to ensure that mandatory climate change disclosure from financial services providers and large-scale companies by 2025 is a welcome one, that will sharpen minds towards the development of products that won’t place an undue cost on the consumer or the planet. Nationwide has already reported our Scope 1 and 2 emissions and in addition we will be reporting our Scope 3 emissions in our Annual Report and Accounts in May 2021.

Finally, ensuring that the 2.4m households living with fuel poverty[9] do not face undue financial pressures in the bid to tackle climate change should be at the front and centre of policy-makers’ minds. Lifting these households out of fuel poverty will require action across the private rented and socially rented sector as well as owner-occupied homes – and reaching out to the respective stakeholders (social and private landlords; low-income owner occupiers) will require different approaches, incentives, etc. 

  1. What incentives and regulatory measures should be employed to encourage and ensure households take up low carbon heat, and how will these need to vary for different household types?

As discussed previously, the Green Homes Grant is a great start in the journey to encouraging retrofit. However, in order to encourage consumers to invest in their homes and hasten the path to net zero they need clarity on a number of fronts. The Government needs to set out a clearly defined pathway to retrofit, with long-term stable policies and incentives, and clarity regarding what works. This way, early adopters can and will invest knowing that a better scheme won’t come out further down the line. This must be the starting point that lays the groundwork for consideration of different household types and their specific needs.

Nationwide Building Society wants to move to net zero as swiftly as possible, but we should focus on the actions which will get us there.  In addition to the policies outlined in this submission, we believe regulatory and policy change that will support this action includes:

-          Encouraging the growth of energy-efficient alternatives and zero carbon heating options such as air source heat pumps and ground source heat pumps.  Nationwide’s experience so far from the commissioning and design of 239 homes (which should be EPC A rated when complete) in our model development, Oakfield, in Swindon will allow us to develop our understanding of the practical implications of using air source heat pumps.  From our work on Oakfield it is already clear that this market needs development and an injection of orders at scale for the social housing sector would help grow this sector.  This is essential if we are to move homes off the gas grid. 

-          There needs to be better data and understanding of household emissions – whether through more frequent updating of EPCs, or the disclosure of household energy usage by energy companies. This would also support Scope 3 reporting by banks and others who hold properties on their balance sheets, and – in turn – drive action.

The private sector is already moving to anticipate and meet consumer demand. Here at Nationwide Building Society we have pledged the following:

-          We have earmarked £1bn for green lending for EPC A rated homes and eco-home improvements.

-          Our Green Additional Borrowing facility gives a lower initial interest rate on borrowing from £5,000 to £25,000, provided at least 50% of the new advance is spent on energy efficiency home improvements.

As one of the largest buy-to-let lenders we are invested in ensuring that landlords who purchase property using our products, and the tenants who inhabit them, contribute to improved overall standards in the UK housing stock. Government intervention in the following areas, coupled with the reforms mentioned in our response, could help deliver this:

-          New regulation dictates that all privately-rented properties must meet the ‘minimum level of energy efficiency’, EPC E band. However, because there is no centralised source of information regarding the standards, quantity, and ownership of the UK’s privately-rented properties, it will be difficult to actually enforce this new regulation.

-          Indeed, because take-up of landlord registration and licensing schemes is non-mandatory across the UK, there is no way of assessing how many landlords are aware of their regulatory obligations in this regard.

-          With this in mind, we take the view that, in order to push for and enforce best practice, a mandatory landlords’ register is necessary. This would operate as a centralised data-base where the following simple data points would be logged: name and address of landlord, EPC rating and gas certificate (and any other safety and energy-adjacent information). This information would also give the Government an improved source of data regarding the UK’s growing population of renters, and the conditions they live in.

  1. What action is required to ensure that households are engaged, informed, supported and protected during the transition to low carbon heat, including measures to minimise disruption in homes and to maintain consumer choice?
    As discussed in response to question 6, consumers need clarity with regards to the following:

-          What works: what technologies and techniques would best work for their home.

-          What next: set out a clear roadmap and timescale regarding policy-making in this space, so that consumers feel safe in the knowledge that the necessary funding / incentives will remain in place.

Delivering the following will empower consumers to make informed choices regarding retrofit.

November 2020





[1] https://www.euroheat.org/news/swedish-district-heating-reducing-nations-co2-emissions/

[2] https://epbd-ca.eu/ca-outcomes/outcomes-2015-2018/book-2018/countries/denmark

[3] https://epbd-ca.eu/ca-outcomes/outcomes-2015-2018/book-2018/countries/denmark

[4] https://www.london.gov.uk/sites/default/files/low_carbon_heat_-_heat_pumps_in_london_.pdf

[5] Nationwide internal analysis of Live tables on housing supply: Indicators of new supply https://www.gov.uk/government/statistical-data-sets/live-tables-on-house-building

[6] IBID

[7] These figures are taken from an internal report commissioned by Nationwide – Proposed Environmental Enhancements: Oakfield, produced by XC02 in September 2019.

[8] https://www.carbonbrief.org/wind-and-solar-are-30-50-cheaper-than-thought-admits-uk-government

[9] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/882404/annual-fuel-poverty-statistics-report-2020-2018-data.pdf