Funding mechanism: Property-linked finance - Net Zero Go
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Funding mechanism: Property-linked finance

Property-linked finance (PLF) is a financial mechanism where loans are attached to a property rather than an individual or business.

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Financial modelling Heat pump

Funding mechanism: Property-linked finance

Property-linked finance (PLF) is a financial mechanism where loans are attached to a property rather than an individual or business.

It can support the decarbonisation of properties by funding low-carbon technologies and/or interventions such as heat pumps, solar PV, energy storage, and energy efficiency improvements.

When the property is sold, the repayment obligation transfers to the new owner(s), ensuring the loan remains tied to the property.

There are several ways that PLF could be delivered:

  • Option A: Private sector financing – Private sector capital providers fund building decarbonisation projects and establish a property-linked finance agreement, using a suitable linking mechanism.
  • Option B: Local authority financing – Local authorities act as capital providers and recover payments through Council Tax.
  • Option C: Utility financing – A utility company provides financing and collects repayments via utility bills.

PLF is not currently available in the UK but has been demonstrated in other countries such as the United States and Australia. The concept is also being explored by authorities in the UK, including the Greater Manchester Combined Authority and the West Midlands Combined Authority.

Case study: A greenprint for property-linked finance in the UK

Overview

In collaboration with Lloyds Banking Group and Natwest Group, the Green Finance Institute has proposed a ‘greenprint’ for how PLF could be introduced, executed and scaled. The approach is based on five guiding principles:

  1. Runs with the land: Payment obligations must remain with the land, regardless of property ownership.
  2. Customer ease: The customer journey must be simple and allow property owners to make early repayments.
  3. Robust protections: The capital provider should have legal recourse to recover missed payments, but this should not significantly impact the building owner.
  4. Impact: PLF should not impact the availability of other financial products for the property (e.g., the mortgage).
  5. Flexibility: PLF should be applicable to a range of tenures across the residential and non-domestic sectors.

The partnership also explored what mechanisms could enable the linking of finance to properties so that the payment obligations run with the land. For residential PLF, ‘Local Land Charges’ emerged as the most aligned linking mechanism. These are financial charges or restrictions on the use of land.

Local authorities are responsible for maintaining the Local Land Charges register for their areas, though this responsibility may be transferred to the Land Registry.

The greenprint also highlighted several key questions for future research:

  • How can consumer concerns about selling and buying a property with PLF be addressed?
  • What government infrastructure changes are needed to enable PLF to be listed in the Land Registry?
  • Will new property owners have the option to refinance with a different PLF capital provider?
  • How will mortgage lenders and PLF capital providers communicate with one another?

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