Almost all homes fitted with external wall insulation under a flagship government energy efficiency scheme have been left with serious defects, according to a damning report by the National Audit Office (NAO).

The spending watchdog found that poor-quality installations, insufficient monitoring, and weak government oversight have left thousands of households — intended to benefit from improved energy efficiency — instead facing issues such as damp, mould, and, in some cases, risks to health and safety.

The report identifies “clear failures” in the Energy Company Obligation (ECO) programme, which was designed to tackle fuel poverty and reduce carbon emissions. The NAO highlighted widespread problems with installation quality and raised concerns about suspected fraud within the scheme.

According to the report, 98% of homes — between 22,000 and 23,000 properties — that received external wall insulation under the programme require corrective work due to major issues. Additionally, an estimated 9,000 to 13,000 homes (around 29%) that received internal insulation also have significant defects.

In response to the findings, Paula Higgins, chief executive, HomeOwners Alliance, described the report’s findings as “an absolute disgrace”.

She said: “Once again, public money has been used to fund cowboy builders, leaving homeowners with damp, mouldy and unsafe homes. The National Audit Office report lays bare how weak oversight and a broken consumer protection system have failed the very people these schemes were meant to help.

“It’s yet more evidence that the government must act urgently to regulate and license builders and installers — something we have long campaigned for. Without proper regulation, homeowners will never have the confidence to invest their hard-earned money in improving their homes.

“Frankly, the TrustMark model is not working. As a government-endorsed quality scheme, it is meant to safeguard standards across ECO projects, yet the system of sub-licensing ‘scheme providers’ and fragmented oversight has clearly failed. Trust is hard to earn — and even harder to win back once lost.

“We fear this is only the tip of the iceberg. External and internal wall insulation account for just 8% of installations under these schemes, leaving 92% still unexamined. We urge the Government to take action on these other measures — and in particular to look at spray foam insulation, which extends beyond government-endorsed schemes. We continue to hear alarming stories of homeowners left with unmortgageable properties due to shoddy installation and weak oversight. Despite writing to Ministers twice, we have received no meaningful response. Unless swift action is taken, this risks becoming the next major scandal.

“In the meantime, we are deeply concerned for the stress and upheaval this will cause affected homeowners. Our website provides guidance on what the NAO report means, practical next steps for homeowners, and a place for them to share their experiences.”