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Equity is the difference between the current value of your property and the amount you still owe on your mortgage. As you repay your mortgage or if your property’s value increases, your equity may grow over time. Understanding equity is important because it can affect future mortgage options, including remortgaging, moving home or borrowing additional funds. In this guide, we’ll explain what equity is, how it’s calculated and why it matters.
Equity is the difference between your property's value and your outstanding mortgage balance.
Your equity may increase as you repay your mortgage or if your property's value rises.
Property values can also fall, which may reduce your equity.
The amount of equity you have can affect future mortgage options.
Mortgage lenders will assess your circumstances before approving any new borrowing.
How HTG Mortgages Can Help
At HTG Mortgages, I work with over 120 lenders across the UK, meaning we have access to a wide range of mortgage products to suit all types of borrowers. Whether you’re a first-time buyer or looking to remortgage, we can help you determine how much you can borrow and find the right mortgage for your circumstances.
We also provide ongoing support, regularly checking your options after your mortgage is secured, ensuring that you never miss out on a lower rate.
What Is Equity?
Equity is the part of your property that you own outright. It’s calculated by subtracting your outstanding mortgage balance from the current value of your home. As your mortgage balance reduces or your property’s value changes, the amount of equity you hold may also change.
How Is Equity Calculated?
For example:
- Property value: £300,000
- Outstanding mortgage: £200,000
Your equity would be £100,000.
This is a simplified example and doesn’t guarantee the amount you could borrow against your property.
How Does Equity Increase?
Your equity may grow if:
- You make mortgage repayments.
- You make mortgage overpayments.
- Your property’s market value increases.
- You carry out improvements that increase the property’s value.
Equity can also reduce if property values fall.
Speak to an expert
Whether you’re buying your first home, moving house or remortgaging, HTG Mortgages is here to make the process as simple and stress-free as possible. I’ll compare mortgages from over 120 lenders, guide you every step of the way and help you find the right mortgage for your circumstances.
Why Is Equity Important?
The amount of equity you have may affect:
- Remortgaging options
- Moving home
- Borrowing additional funds
- Loan-to-Value (LTV)
- The range of mortgage products available
Every application is assessed individually by the lender.
What Is Loan-to-Value (LTV)?
Loan-to-Value, often shortened to LTV, compares the amount you owe on your mortgage with the value of your property. As your equity increases, your Loan-to-Value may reduce, which can affect the mortgage products available when you remortgage.
Can I Borrow Against My Equity?
Some homeowners choose to borrow against the equity in their property, for example to fund home improvements or other purposes. Whether this is possible depends on your individual circumstances, affordability and the lender’s criteria.
What Happens If House Prices Fall?
If property values fall, the amount of equity you have may reduce. In some situations, homeowners may owe a higher percentage of their property’s value than expected, which can affect future remortgaging options.
Should I Speak to a Mortgage Broker?
If you’re considering remortgaging, moving home or borrowing additional funds, a mortgage broker can explain how your equity may affect the options available. Any recommendation will always depend on your circumstances and lender criteria.
One of the most common uses of equity is funding a second property purchase; I cover how that works in my guide to remortgaging to buy another property.
Need Personal Mortgage Advice?
Every buyer’s situation is different. While this guide explains the general rules, the right mortgage for you depends on your income, deposit, credit history and future plans. If you’d like tailored advice, I’m here to help, with whole-of-market coverage.
