Understanding Home Equity
Home equity is the difference between your home’s market value and the balance remaining on your mortgage. If your home is worth more than what you owe, you have “positive equity.” On the flip side, if you owe more than your home’s value, you’re in “negative equity.”
How to Determine Your Home’s Equity
It’s simple to find out, start by checking your mortgage statement or contacting your lender to see how much you still owe. Next, estimate your home’s current value. You can do this by browsing property portals like Rightmove or Zoopla to see what similar homes in your area have sold for recently. For a more precise figure, consider getting a professional valuation from a local estate agent.
If your home’s value exceeds the amount you owe, congratulations—you have equity! Here’s a quick formula to help you calculate it: Home’s Value - Mortgage Balance = EQUITY
Using Equity as a Deposit
One of the most practical uses of home equity is applying it as a deposit on a new home. This approach can reduce the size of the mortgage you’ll need for your next property, which in turn lowers your loan-to-value (LTV) ratio. LTV is just the percentage of the property’s value that you’re borrowing and a lower LTV is beneficial because it often means better mortgage rates and a wider selection of mortgage products to choose from.
Example: If your current home is worth £250,000 and you owe £100,000, you have £150,000 in equity. If you’re purchasing a new home for £300,000, you could use that £150,000 as your deposit, leaving you with only £150,000 to borrow.
Before using equity as a deposit keep in mind that while it can be a smart move, it’s not without risks. Tapping into your home’s equity means taking on more debt, which could limit your financial flexibility and borrowing power in the future.
Buying Your Next Home Outright
In some situations, you might be able to use your equity to buy your next home without needing a mortgage at all. This is often referred to as “downsizing,” although it doesn’t always mean moving to a smaller home—it could simply mean relocating to a less expensive area.
Example: If you sell your home for £250,000, pay off your £100,000 mortgage, and move to a more affordable area, you could use the remaining £150,000 to buy your new home outright—no mortgage required!
Accessing Equity Without Moving
You don’t have to move to tap into your home’s equity. One way to access your equity while staying put is by remortgaging.
Example: If your home is valued at £250,000, and you owe £100,000 on your current mortgage. You could remortgage for £150,000, pay off the existing mortgage, and have £50,000 left over. This extra cash can be used for anything from home improvements to paying off other debts.
Keep in mind, that remortgaging to release equity means taking on more debt. If you can't keep up with the new mortgage payments, you could risk losing your home.
How we can help
Regardless of where you are on your property journey whether you’re saving for a deposit, buying, selling, remortgaging or investing More Financial can help. We offer free no-obligation appointments and all of our advice is free and uncapped! Get in touch via the form below or give us a call/email we’re here to help.
YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. More Financial is a trading name of Opulence Money Limited and is an appointed representative of Mortgage lntelligence Ltd which is authorised and regulated by the Financial Conduct Authority under number 305330 in respect of mortgage, insurance, and consumer credit mediation activities. Company registered in England & Wales under number 10592352.
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