Equity

Equity is the portion of your property that you truly own. It is calculated by taking the current market value of your home and subtracting the outstanding mortgage balance. If your home is worth £300,000 and you owe £200,000 on your mortgage, you have £100,000 of equity.

How equity builds over time

Your equity grows in two ways. First, every mortgage payment you make on a repayment mortgage reduces your outstanding balance, which increases your equity. Second, if the value of your property rises, your equity increases even without making extra payments. In practice, both usually happen simultaneously — you are paying down the loan while the property appreciates in value.

Your initial deposit when you bought the property is your starting equity. A buyer who puts down a 10% deposit on a £250,000 home starts with £25,000 of equity. Over the following years, as they repay the mortgage and the property potentially increases in value, that equity grows.

Negative equity

Negative equity occurs when your property is worth less than the outstanding mortgage balance. This can happen if property values fall significantly, particularly if you bought with a small deposit. Negative equity does not cause immediate problems unless you need to sell or remortgage, because most lenders will not offer a new mortgage on a property worth less than the loan amount. If you are in negative equity but can keep making your payments, the situation usually resolves over time as you pay down the balance and values recover.

Using equity to remortgage

When you remortgage, your equity determines your LTV ratio, which affects the rates available to you. More equity means a lower LTV and better deals. You can also choose to release some of your equity when remortgaging — borrowing more than your current balance — to fund home improvements, consolidate debts, or cover other large expenses. This is sometimes called equity release or capital raising, though it increases your mortgage and your monthly payments.

Last updated: April 2026