Incentivising green lending with data-driven retrofit plans: Octopus Real Estate

Octopus Real Estate is a leading specialist real estate investor and lender in the UK, and part of Octopus Investments – a certified B Corp with a focus on delivering quality, sustainable places to live.

Octopus Real Estate is working with Kamma to ensure the residential side of the business is playing its part in property decarbonisation.

The challenge: How to incentivise property owner customers to make energy efficiency improvements and cut emissions

Octopus Real Estate has found it relatively simple to embed sustainable goals in their new property development projects – such as the Greener Home Alliance project which gives loans to developers who commit to building EPC A or B rated homes. 

It has been much more difficult for their residential lending on existing homes – Octopus Real Estate simply provides financing for property owners, without any direct input on how the property is managed or renovated. 

Graph showing residential emissions reductions from 1990 to 2030.

Therefore, to support decarbonisation for the existing homes in their mortgage book, the team needs to play a role in incentivising their customers to make retrofit improvements to increase energy efficiency and reduce carbon emissions. 

But retrofit uptake in the UK has so far been very slow, with the key barrier being costs: homeowners typically perceive retrofit as an expensive and complex undertaking, with the benefits gained not worth the upfront investment. 

So, the key challenge for Octopus? How to overcome the cost barrier and demonstrate the benefits, to make retrofit a no-brainer for their borrowers.

The solution: Making retrofit a no-brainer by combining an educational hub with Kamma’s cost-optimised retrofit tool

Octopus Real Estate has developed two retrofit financing products, aiming to enable energy efficiency improvements by funding the upfront costs:

  1. Refurbishment loan: if a property is improved by at least 20 SAP points and to at least an EPC C standard, the property owner can access an interest rate reduction of 0.15% per month (1.8% per year).
  2. Enviro-let: a buy-to-let offering which enables borrowers to draw additional funds of up to 5% of the property value during the lending period if they use it for energy efficiency improvements that bring the property to a minimum EPC C standard.

These products are listed in a new green lending hub on the Octopus Real Estate website.

“We don’t want to just reward ‘buying well’ when it comes to energy efficient homes, with a green mortgage that gives preferential rates to homes that are already efficient. We want to create real impact by educating customers on the benefits of retrofit and giving them financial incentives to make improvements.” 

Steve Matthews

Head of Residential Lending

However, the team knew that simply having these products would not be enough to incentivise retrofits.

They needed messaging and educational content to help customers grasp the benefits of energy efficient homes – reduced energy bills, improved comfort (both of which also lead to longer tenancies for BTL mortgage borrowers), and increased property value.

To achieve this, Octopus Real Estate has also embedded a white label version of Retrofit Explorer by Kamma into the green lending hub.

“Retrofit Explorer has given us the conversation starter we need to sell borrowers and brokers on the benefits of retrofit. The tool enables them to quickly get an accurate view of not only the measures needed and their cost, but also the benefits in terms of EPC rating, energy bills, and property valuation. It also clearly guides users on how to turn the plan into action by connecting with local installers who can deliver the work needed.”

Steve Matthews

Head of Residential Lending

Kamma’s home retrofit planning tool is specifically designed to highlight the benefits of retrofit to increase the number of completed user journeys

  • Powered by Kamma’s advanced EPC and emissions dataset for UK housing to ensure an accurate view of costs and energy bill savings – unlike most tools which rely on only EPC data (which uses inaccurate cost baselines) or user inputs (self-reports are likely to be inaccurate)
  • Cost-optimised retrofit plans which highlight low-cost quick wins and give the most affordable route to meet the homeowners goal e.g. an EPC C standard instead of presenting an overwhelming and expensive plan with all possible measures
  • Emphasising the ROI of retrofit by always coupling upfront costs with the expected energy bill savings and property resale value increase
  • Connecting users with local Trustmark verified installers who can deliver the proposed measures, making it as easy as possible to turn the plan into action
Learn more about retrofit explorer

What’s next for Octopus Real Estate? 

The team is currently operating a pilot phase for the green lending hub and Retrofit Explorer tool, aiming to drive traffic to the hub so that they can quickly test and learn the messages and resources that will increase interest in retrofitting amongst their customer base.

So far, there has been a strong level of initial interest and positive feedback from users – especially the brokers who Octopus Real Estate work with as a key route to market, who see real value in Retrofit Explorer as a way to engage customers during the sales process.