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What is equity?
What is home equity?
Simply put, equity is how much of your home that you own.
You can work out your home equity by taking away your remaining mortgage payments from the value of your property. The amount that’s left is your equity in the property. You can be in either positive equity or negative equity.
How does home equity work?
Finding out how much equity you have requires a few bits of information and some simple maths.
Home equity is worked out by subtracting how much you still owe on your mortgage from your property’s current value.
Home equity example
If your property is worth £250,000 and you have £200,000 still to pay on your mortgage, your equity is £50,000.
If there’s a dip in the property market and your home drops in value, your property could be worth less than what you still owe on your mortgage, putting you into negative equity. Read our guide on understanding negative equity.
Why is home equity important?
Having equity in your home can help provide a buffer in case home values fall.
If you fall into negative equity, you might find it difficult to sell your home.
How can you build equity?
You can build equity faster by overpaying on your mortgage, either through making higher monthly payments or paying off a lump sum. Check with your provider how much you are allowed to overpay per year.
If you’re looking to buy a new home, putting down a larger deposit can also help build equity early.
You’ll also build up equity by meeting your monthly mortgage repayments – unless you’re on an interest only mortgage.
Equity in your home can also increase due to rises in house prices. As the value of your home increases, the gap between what you owe and how much it’s worth increases.
The content on this page is for reference and does not constitute finance advice.
For impartial financial advice, we recommend government bodies like the MoneyHelper.
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