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Equity in a house is the part of its value that belongs to you outright rather than to your mortgage lender. It is worked out by taking your home’s current market value and subtracting whatever you still owe on your mortgage. If your home is worth £250,000 and you owe £150,000, you have £100,000 of equity, though this is an illustrative example rather than a fixed figure for any particular property.
How do you work out your equity?
The calculation itself is simple: current property value, minus outstanding mortgage balance, equals your equity. The harder part is knowing your property’s current value accurately, since prices move over time and an online estimate is not the same as a formal valuation carried out by a surveyor during a mortgage application. Your last mortgage statement will show your outstanding balance, which is the more reliable half of the sum. If you are not sure of your property’s likely value, comparing recent sale prices of similar homes nearby, or asking a local estate agent for an informal opinion, can give you a more realistic starting figure than a rough guess.
| Example | Property value | Outstanding mortgage | Equity |
|---|---|---|---|
| Illustration A | £250,000 | £150,000 | £100,000 |
| Illustration B | £180,000 | £160,000 | £20,000 |
| Illustration C | £300,000 | £90,000 | £210,000 |
These figures are for illustration only. Your own equity depends entirely on your property’s actual value and your own mortgage balance.
How does equity change over time?
Equity generally builds up in two ways: paying down your mortgage balance each month, and any increase in your property’s value. Both work in your favour together, though property values can also fall, which reduces equity even if you are keeping up with payments. This is why lenders and surveyors always want an up-to-date valuation rather than relying on what a property was worth when it was bought or last remortgaged. Our guide on whether you need a valuation to remortgage explains when a fresh valuation is carried out and what happens if it comes back lower than you expected.
Equity and loan to value (LTV)
Loan to value, or LTV, is closely related to equity but expressed differently. LTV is your outstanding mortgage as a percentage of your property’s value, so £150,000 owed on a £250,000 home is 60% LTV, meaning you have 40% equity. Lenders often price deals and set criteria in LTV bands, commonly in 5% steps, and a lower LTV (meaning more equity) generally widens the range of deals available. Our guide on how LTV affects a bad credit remortgage explains this in more depth.
Why does equity matter when you remortgage?
Your equity affects how much you may be able to borrow and which lenders are likely to be interested. More equity generally means a lower LTV, which can open up more deals, including with some lenders who take a more cautious view of adverse credit at higher LTVs. Equity is also what makes it possible to raise additional money through a remortgage, since a lender is lending against the value that sits behind your existing mortgage. Our guide on how releasing equity works covers this process specifically, including the sorts of reasons homeowners commonly give for wanting to raise money this way.
What if you have little equity?
Having little or no equity narrows your options, since most lenders want some margin between what they are lending and the property’s value. If your property’s value has fallen, or you are early into your mortgage term, you may have less equity than you expect, which our guide on remortgaging with little equity covers in detail, including what alternatives exist. This is separate from, but often discussed alongside, how much you can remortgage for overall, since both your equity and your income and outgoings play into that figure.
Equity and adverse credit
Having equity in your home does not cancel out adverse credit, but it is one of several factors a lender weighs together, and more equity can sometimes support an application where other parts of your file are less straightforward. A few points worth knowing:
- Equity is not a guarantee of approval. Lenders still assess your income, outgoings and credit history alongside your equity, so a large amount of equity does not mean adverse credit will be overlooked.
- Releasing equity to consolidate debt secures those debts against your home. If you are considering this, our guide on debt consolidation remortgages sets out the risks clearly, including that a longer term can mean paying more overall.
- A mortgage-free home still counts as equity, but taking a new mortgage against it is a new borrowing decision. If you own your home outright, see remortgaging a mortgage-free home with bad credit for how this differs from a standard remortgage.
- A specialist adviser can weigh your equity and your credit file together, rather than you guessing which lenders might consider your specific combination of circumstances.
- If you are considering releasing equity because of financial difficulty rather than choice, it is worth speaking to MoneyHelper or StepChange first, since securing existing debts against your home is a significant decision that free advice can help you think through.
Knowing your equity gives you a realistic starting point before you look at remortgaging, whatever is on your credit file, since it is one of the few figures in the process that you can work out yourself before speaking to anyone else.
Frequently asked questions
How do you work out how much equity you have?
Subtract what you still owe on your mortgage from your home’s current market value. For example, a home worth £250,000 with £150,000 left on the mortgage has £100,000 of equity. A recent valuation gives a more accurate figure than an estimate, since property values change over time.
Can you release equity from your house?
Often, yes, usually by remortgaging for more than you currently owe, taking a further advance from your existing lender, or through equity release products aimed at older homeowners. Each has different costs and suitability, so see releasing equity with bad credit for more detail.
Does having bad credit affect how much equity you can release?
It can. Lenders weigh your credit history alongside your equity and income when deciding how much they are willing to lend, so having adverse credit does not automatically stop you releasing equity, but it may affect the amount or the choice of lender.
Is equity the same as loan to value?
They are related but not identical. Equity is a cash amount, such as £100,000. Loan to value (LTV) is a percentage, showing what proportion of the property’s value is still mortgaged. A higher equity amount usually means a lower LTV, which can widen your options.