As climate risk evolves from a reputational concern into a tangible commercial reality, 2026 is a pivotal year for the property sector.
At the time of writing the long-awaited Warm Homes Plan is still awaited. The Plan should, or needs to, answer the question of what “net zero” requires from the housing sector, how consumers will be protected, and how Government will enable, enforce and encourage action.
But like any Government initiative in the sector it is a short term answer to a long-term question – are homes climate risk ready?
What is climate risk in the property sector?
- Physical Risk: The risk of financial loss resulting from the increasing frequency and severity of climate-related events. For UK housing, this is specifically defined as property-level exposure to flood, subsidence, coastal erosion, and extreme heat. These factors impact collateral value and "insurability," which directly affects a lender's recovery in the event of default (Source: PRA SS5/25).
- Transition Risk: The risk associated with the adjustment toward a low-carbon economy. In the housing sector, this is defined as asset obsolescence. Properties with low energy efficiency (EPC D or below) may face "transition shocks" due to tightening Minimum Energy Efficiency Standards (MEES) and the rising cost of carbon. These would be viewed as a "credit risk" because they impact a borrower's ability to pay (disposable income squeeze) and the property's marketability (Source: Bank of England Climate Disclosure 2025).
The management of this risk is not only a challenge for the UK Government. It’s a convergence point for finance, housing, and national carbon strategy.
Why this year matters for those working across the property sector:
1. Finance: rigour in climate risk reporting
The days of voluntary ESG reports are over. 2026 marks the start of mandatory climate-related financial disclosures under the UK Sustainability Reporting Standards (UK SRS). For the first time, companies will need to report on sustainability risks with the same rigour as financial results.
Simultaneously, the Prudential Regulation Authority (PRA) has set a deadline of June 2026 for financial institutions to complete internal reviews against its new supervisory statement (SS5/25). This means lenders are under pressure to stress-test their loan books against climate scenarios. If you are looking for capital, expect your lender to ask much tougher questions about your asset's energy performance and management of physical risks than they did in 2025.
2. Housing: Setting the standard(s)
For the built environment, the long-awaited Future Homes Standard is set for implementation this year. This regulation is likely to ban gas boilers in new builds and mandate a higher reduction in carbon emissions compared to previous standards.
But it’s not just about new builds. The Government is also due to announce decisions on a revision to the Decent Homes Standard and related minimum energy efficiency standards that would see new requirements for quality and safety applied to the social and housing stock – including minimum energy efficiency standards for both the social and private housing sector.
3. Metrics: more than money
The government is reforming the Energy Performance of Buildings framework and the Energy Performance Certificate. Measurement is moving away from simple cost-based ratings to metrics that better reflect carbon and fabric efficiency.
When people say ‘the devil is in the detail’ on the launch of the Warm Homes Plan’, it is likely this is where the “devil” will be found. It is a welcome move but will affect how data is collected, how a home’s performance is calculated and how or when standards can be implemented and enforced. Lenders, brokers, investors and landlords in the private and social sectors will need to get to grips with this new "language" of efficiency to avoid stranded assets – assessing current compliance, the cost of compliance and the relationship to any lending - before determining what Warm Homes Plan support is relevant to each home.
4. Carbon Budget
We are currently deep in the Fourth Carbon Budget (2023-2027). 2026 is the penultimate year of this cycle, making it the critical window to ensure the UK stays on track. Furthermore, by June 2026, the government must legally set the Seventh Carbon Budget (2038-2042). This will signal the long-term direction of travel, likely tightening caps and forcing faster decarbonisation across supply chains.
5. Funding: The Warm Homes Plan
Finally, 2026 should be a pivotal year for retrofit funding. With the Energy Company Obligation (ECO) scheduled to end, meaning an uncertain future for nationally-available funding, and the full rollout of the Warm Homes Plan, we expect to see a new wave of grant funding, incentives and a new loan mechanism.
However, with initial indications that support will focus on solar PV, battery and heat pumps it is not clear the extent to which the Plan will deliver the impact on fuel poverty and healthier homes that so many need.
The Bottom Line
2026 is the year climate risk moves from a reputational concern to a hard commercial reality. Whether risks relate to physical or transition factors, the answer is not to rely on the Warm Homes Plan alone, but to understand those risks, manage them proactively and in combination, and with an eye both to the Plan and the potential risks beyond.
