Property equity
Property equity is the share of a property that you own outright, calculated as the current property value minus what you owe on it. If your property is worth £300,000 and you have a £200,000 mortgage, your equity is £100,000. It is the portion that would be yours, before selling costs, if you sold the property and cleared the debt. The word equity has other meanings in finance, such as shares in a company, but in property it refers to this ownership stake.
How to calculate your equity
To work out your equity, take the current market value of the property and subtract the outstanding balance on your mortgage and any other loans secured against it. A property worth £300,000 with a £200,000 mortgage and a £10,000 secured loan leaves £90,000 of equity. For the value, check comparable sold prices on HM Land Registry or get a valuation, since an online estimate is only a starting point. For the debt, use your latest mortgage statement. You can keep track of your equity as values and balances change with August's Property Insights.
How property equity grows
Equity grows in two ways. The first is repaying the mortgage, which reduces the debt side of the sum, though only repayment mortgages do this, since an interest-only mortgage leaves the balance unchanged and builds equity only through value. The second is the property rising in value through capital growth, which lifts the value side while the debt stays the same. Investors can also create equity at the outset, because buying below market value means you hold equity from the day you complete rather than waiting for it to build. From working with self-managing landlords across the UK, equity is the figure that matters most when you want to grow, because it is what a lender will let you borrow against and what you can recycle into the next purchase.
Equity, loan-to-value and borrowing
Equity is the mirror image of loan-to-value (LTV), the percentage of a property's value covered by the mortgage. A property worth £300,000 with a £200,000 mortgage has £100,000 of equity and a 67% LTV. The more equity you hold, the lower your LTV, and lower LTV bands generally unlock cheaper mortgage rates. This is why building equity matters beyond the headline number: it directly affects what you can borrow and on what terms when you buy again or remortgage.
Releasing and using your equity
Equity is not cash until you access it, and there are two main ways to do so. You can sell, which realises the equity but ends your ownership, or you can borrow against it by remortgaging or taking a further advance, releasing some of the equity while keeping the property. Investors often release equity this way to fund the next deposit, recycling their capital rather than leaving it locked in one property, as in an all money out deal. For homeowners aged 55 and over, equity release is a separate, regulated product that works differently and should not be confused with a standard remortgage. Money raised by borrowing against equity is not taxable, because it is a loan rather than income, although selling to realise the gain can trigger capital gains tax. Landlords using August tell us they watch equity rather than headline value, since it is the part of the property that is genuinely theirs once the mortgage is accounted for.
Negative equity
Negative equity is the opposite position, where you owe more on the mortgage than the property is worth, usually because values have fallen since you bought. It matters most for owners who borrowed at a high loan-to-value, and it makes selling or remortgaging difficult because the sale would not clear the debt. Negative equity only becomes a real loss if you have to sell while in that position; if you can hold, a recovery in values can restore it.
Frequently asked questions
How do I work out how much equity I have?
Subtract the outstanding balance on your mortgage and any secured loans from the current market value of the property. For example, a £300,000 property with a £200,000 mortgage has £100,000 of equity. Use a recent valuation or comparable sold prices for the value, and your mortgage statement for the balance.
How is equity different from the property's value?
Value is what the whole property is worth. Equity is only the part you actually own, that is, the value minus the debt secured against it. Two people with identically valued homes can have very different equity depending on the size of their mortgages.
Can I borrow against my equity?
Often, yes. Lenders may let you remortgage or take a further advance against the equity you hold, subject to their loan-to-value limits and affordability checks. Investors commonly do this to release a deposit for another property, while keeping the original one.
