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De-risking retrofit for institutional capital
Retrofit is a strong investment for institutions, but there are still major challenges to overcome, writes Anna Moore, chief executive at Domna
Anna Moore is CEO of Domna
Retrofit is a strong investment for institutions, but there are still major challenges to overcome, writes Anna Moore, chief executive at Domna #UKhousingOfgem’s announcement of a 2% increase in the energy price cap this October has put energy prices back in the spotlight – particularly for the 3.8 million households living in non-decent homes. Ministers have commendably stuck with the 2030 deadline for private landlords to bring the 1.8 million private rental properties below the EPC ‘C’ rating up to scratch.
The government is consulting on applying the same minimum energy efficiency standard (MEES) to socially rented stock. On average, energy efficiency upgrades will cost landlords £6,000 per property – though this varies considerably by type of home and geography. While single landlords may baulk at forking out that much, the opportunity for day one capital value uplifts and longer-term cost savings (through cheaper energy bills) make this a strong investment for institutions – generating up to 20% valuation improvements, and value-add returns.
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Giants like Pension Insurance Corporation, L&G, NatWest and Lloyds are among those already active in the space, and eyeing up the potential for firing up both financial returns and measurable social impact. In parallel, Mansion House reforms creating “super funds” by pooling together local government pension scheme (LGPS) assets is another potential capital source, to unlock £80bn of investment for public infrastructure projects, such as housing.
The stable inflation linkage offered by residential works well for LGPS assets – particularly as the entire universe shifts to longer-term DC setups. The demonstrable net zero alignment is simply a plus.
Meanwhile, infrastructure funds – many of which already back affordable housing – as well as sustainability-focused private equity and credit managers are also circling. Whatever you call it, structured capex, and the ability to realise tangible uplifts in both income and asset value, create routes for all parties. The beneficiaries can be registered providers (RPs) or individual homeowners. Retrofit loans backed by the National Wealth Fund (NWF) or Homes England, and the potential to securitise these products, will only heighten attraction.
“There are proven models for institutional investment into socially rented properties – and money looking to get into this space”
Yet three consistent frictions remain.
First, the fragmented ownership of Britain’s housing stock. Nearly half of the UK’s five million private rentals are owned by landlords with just one property. This limits economies of scale unless portfolios are bundled into investable packages. This makes at-scale private landlords, and RPs and councils who own clusters of socially rented homes in a given area, highly attractive partners for institutional investors. In fact, the most common complaint we hear from investors looking to fund retrofit is that they have the capital ready to deploy, but are waiting on RPs to engage. There are proven models for institutional investment in socially rented properties – and money looking to get into this space. Social landlords looking to fund their retrofit and Decent Homes capital programmes can follow these existing blueprints.
Outside of social housing, fragmentation creates a barrier to entry – and also a huge consolidation and value-creation opportunity. Studies by Halifax, NatWest, Knight Frank, MoneySuperMarket and others consistently point to valuation improvements of 20% or more on private tenure homes going from low EPCs to higher scores. Institutions bold enough to take on the aggregation challenge stand to make outsized returns.
Then there’s the data challenge. EPCs remain the dominant tool – but as static labels that can be up to 10 years old, they are limited. Reforms are being considered by the Department for Energy Security and Net Zero (DESNZ), but underwriting remains noisy when data is so inconsistent. One key suggestion here is unlocking smart meter data – something currently blocked by regulation.
And there’s delivery risk. Scaling retrofit from a pilot to a national programme requires consistent quality, strong supply chains, and the assurance that promised savings will arrive on time. Standards like PAS 2035 and TrustMark accreditation help, but investors still worry about void periods, cost over-runs, and reputational risk. That’s why the opportunity here for housing associations to take a lead is so pronounced – it could have an outsized impact on the wider sector.
The inflection point comes when these risks are translated into structures that investors already understand.
“With the NWF already guaranteeing £400m of NatWest loans and £150m of THFC debt – and Lloyds committing £60m to Peabody – the precedent is there for de-risked, large-scale rollout”
So, we treat data like a priced asset. When working with social landlords or investors to manage large-scale retrofits, we create digital building “passports” that crunch EPCs, meter data, surveys, and measure stacks in one place. This creates an avatar making each “paper-labelled” home into a verifiable, bankable asset, ready for underwriting and secondary sale.
It’s also crucial that retrofits should look like infrastructure programmes, with clear scopes for each property type, standard unit costs and staged drawdowns tied to milestones. These capital investment programmes should be integrated – marrying energy efficiency, condition and Decent Homes upgrades, and other quality of life improvements to make it a more attractive and relatable investment option. This mirrors how capital is already deployed in private credit and infrastructure.
We must align risk and reward. For credit investors, this might mean splitting (or ‘tranching’) exposure and using public guarantees (e.g. from the NWF) to limit overall risk. For equity investors, it means linking carry or contractor payments to verified performance, such as EPC uplifts, damp reduction and thermal-imaging evidence.
It’s also important to anchor in national standards. By mandating PAS 2035 roles and TrustMark accreditation, portfolios can be de-risked to a common baseline, just as investors in other asset classes rely on ISO or Building Research Establishment Environmental Assessment Methodology (BREEAM) benchmarks.
With the NWF already guaranteeing £400m of NatWest loans and £150m of THFC debt – and Lloyds committing £60m to Peabody – the precedent is there for de-risked, large-scale rollout.
I apologise for my tendency to “investment speak” – but it’s essential we get real about what’s needed to solve this problem. The solutions are staring us in the face, but until we grapple with their complexities, those least able to pay will continue to bear the costs of fuel poverty.
Anna Moore, chief executive, Domna
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