House Equity: What It Is and How You Can Use It

If you own your home, you’re probably sitting on more wealth than you realise. Every mortgage payment you make, and every pound your property gains in value, adds to your house equity, which makes it one of the most useful things a homeowner can build.

The question most people ask next is: what can I actually do with it?

The answer is quite a lot. Equity can become the deposit on your next home, the funds for a new kitchen or extension, the start of a property portfolio or, later in life, a way to boost your retirement income through equity release. However, it can also work against you if house prices fall and you end up owing more than your home is worth.

In this guide we’ll cover what house equity is, how to calculate it, the ways you can use it, and the risks to weigh up before you borrow against your home.

Want to skip straight to what’s possible for you? Book a free initial chat with one of our advisors.

What is house equity?

House equity is the part of your home that you own outright: its current market value minus what you still owe on your mortgage. You’ll also hear it called home equity or mortgage equity, and they all mean the same thing.

Say your home is worth £300,000 and you have £180,000 left to pay on your mortgage. You have £120,000 of equity. Your lender keeps a legal charge over the property until the loan is cleared, and once the mortgage is paid off, all of the value is yours.

How does your house equity grow?

Your equity grows in three ways:

1. The deposit you put down
2. The mortgage you pay off
3. Any rise in your home’s value

Here’s how that could look for a home bought for £250,000 with a 10% deposit, five years later:

Illustrative figures only.

If that situation were to occur, you’d now owe £205,000 on a home worth £280,000.

Two things are worth knowing.

First, on a repayment mortgage the early payments are mostly interest, so your balance falls slowly at first. If you have an interest-only mortgage, your balance doesn’t fall at all, and any growth in equity comes purely from rising prices.

Second, equity can shrink as well as grow: if your home’s value drops, so does your equity. (We’ll cover the possibility of negative equity a bit later on).

Making significant improvements to your home such as an extension, a loft conversion or off-road parking can also lift your home’s value, although they don’t always add as much as they cost. If you’re looking to do something purely to increase the value of your home, it’s always worth speaking to a local estate agent first who’ll be able to inform you as to how much the value will increase by.

Why is it important to build equity in your home?

Building equity matters because it reduces what you owe, widens your borrowing options and can lower the interest rate you pay. More specifically:

• It can unlock cheaper deals. Lenders price mortgages in loan-to-value bands, and a lower loan-to-value usually means a lower rate. According to Zoopla, as of October 2026, the average two-year fixed rate is 5.13% at 60% LTV, against 5.43% at 75% LTV.
• It’s a buffer against falling prices. The bigger your cushion, the further prices would need to fall before you owed more than your home is worth.
• It’s the deposit for your next move. Moneyfacts analysis of 2025 data found the average home mover bought a property worth around £466,000 at a 58% loan-to-value, meaning 42% of the price came from existing equity.
• It gives you flexibility. Equity can help fund home improvements, help your family, or support your retirement.
• It’s a major source of UK wealth. Savills estimates that UK net housing wealth has risen by 54% (£2.45 trillion) in the ten years to the end of 2025, while mortgage debt rose by 35%. Nearly half of the UK’s roughly £7 trillion of net housing wealth is held by owner-occupiers with no mortgage at all.

It’s always important to remember that equity is only “paper wealth” until you do something with it. It turns into usable cash when you sell, remortgage or release it, and the rest of this guide looks at each of those routes.

If you’d like to see how it all fits with the property ladder, we’ve covered that in another guide.

How can you build equity in your home faster?

The fastest ways to build equity are to pay your mortgage down quicker, add genuine value to your home and make sure you’re not overpaying on interest. You can’t control the housing market, but you can control the following:

• Overpay when you can. Many fixed-rate deals let you overpay by up to 10% of the balance each year without an early repayment charge, though terms vary, so check yours first. Every extra pound goes straight off the debt and cuts the interest you pay.
• Choose a repayment mortgage. Unlike interest-only, a repayment mortgage reduces your balance every month, so your equity grows even if prices stand still.
• Keep your rate competitive. The lower your rate, the more of each payment goes towards the loan rather than interest. Once your current deal is 6 months away from expiring, get in contact with a remortgage advisor who can secure you a deal now and then if rates fall over the next 6 months secure you a better one.
• Add value where it counts. Extra bedrooms, a modern kitchen or bathroom and off-road parking can lift your home’s value, but get quotes and a realistic valuation before you spend, as renovations don’t always pay for themselves.
• Maintain your property. A well-kept home holds its value better, and a lender’s surveyor will notice problems with the roof, damp or structure.

It’s unwise to rely on price growth alone right now. The ONS reported UK average annual house price growth of just 1.4% in the year to July 2026, and Nationwide’s index showed annual growth halving to 0.8% in September.

How do you calculate how much equity you have in your home?

Subtract the outstanding balance on your mortgage from your home’s current market value, and what’s left is your equity. There are three quick steps:

1. Estimate what your home is worth today. Look at what similar homes on your street or in your area have recently sold for, ask a local estate agent for a free valuation or use an online valuation tool. Bear in mind that the figure is only an estimate until a lender’s surveyor values the property.
2. Find out what you still owe. Check your latest mortgage statement or online account for the outstanding balance. That’s the amount left to repay, not the amount you originally borrowed.
3. Subtract one from the other.

Using our earlier example, a home worth £300,000 with a £180,000 mortgage balance gives you £120,000 of equity (£300,000 − £180,000). That’s 40% of the property’s value.

What is loan-to-value (LTV) and why does it matter?

Loan-to-value, or LTV, is your mortgage balance expressed as a percentage of your home’s value, and lenders use it to decide whether to lend to you and at what rate. To work it out, divide what you owe by what your home is worth and multiply by 100.

In our example, £180,000 ÷ £300,000 × 100 = 60% LTV.

A lower LTV means you have more equity and the lender takes less risk. Lenders price their deals in LTV bands (commonly 60%, 75%, 80%, 85%, 90% and 95%), so crossing into a lower band when your equity grows, or your home’s value rises, can open up cheaper rates when you remortgage.

How much of your equity can you actually use?

You can usually only use part of your equity, because lenders won’t let you borrow against 100% of your home’s value. Each lender sets a maximum LTV, and what you can raise is the gap between that cap and what you already owe.

For example, if a lender caps borrowing at 75% LTV on a £300,000 home, the most you could owe in total is £225,000. With £180,000 still outstanding, that leaves up to £45,000 you could potentially raise, even though your total equity is £120,000.

This is why headline equity figures can look bigger than what’s genuinely available. Selina Finance’s estimate of £791 billion of total mortgaged equity across the UK, for instance, counts only just over half (£411.7 billion) as usable once lender limits are applied.

Lenders will also check that you can afford any extra borrowing, so your income, outgoings and credit score all play a part.

Can you use your equity as a deposit when moving house?

Yes, and it’s the most common way people use their equity.

When you sell your home and clear your mortgage, the equity you’ve built up comes to you as cash, and you can put it towards the deposit on your next property. That’s exactly how most home movers trade up, downsize or relocate.

It also explains why movers can borrow less. Moneyfacts data shows the average home mover buys with 42% equity behind them, compared with 22% for the average first-time buyer.

How does it work in practice?

Your deposit is the sale price of your current home, minus your mortgage balance and the costs of selling. Here’s an illustrative example:

As illustrated above, beyond your deposit, you’ll need to budget for Stamp Duty, legal fees, a survey and removal costs, which can quickly eat into the equity you’ve built.

Stamp Duty is the big one. Under the current residential rates, you pay nothing on the first £125,000 of the price, 2% on the next £125,000, 5% from £250,001 to £925,000, 10% up to £1.5 million and 12% above that. On our £450,000 example, that comes to £12,500.

If you’re buying before you’ve sold, you could face the 5% surcharge for owning two homes. You can claim it back if your old main home is sold within 36 months, but you’ll need the cash up front, so make sure you plan for it.

What is negative equity?

Negative equity is when you owe more on your mortgage than your home is worth, so selling it wouldn’t raise enough to clear the loan. It’s the opposite of house equity, and it usually happens when prices fall after you’ve bought, particularly if you had a small deposit or even secured a 100% mortgage.

Here’s an example…

You buy a £250,000 home with a 5% deposit (£12,500), so your mortgage is £237,500. If prices then fall by 8%, your home is worth £230,000. You owe £7,500 more than the property is worth, which is a loan-to-value of about 103%.

The important thing to know is that negative equity is a paper loss until you need to do something with the property. If you’re settled, your payments are affordable and your mortgage is on a fixed rate, you may not notice. It bites when you want to sell, or when your deal ends and you need to remortgage.

Can you sell your house if you have negative equity?

Yes, you can sell, but the sale proceeds must clear your whole mortgage, so you’d need to find the shortfall yourself and your lender has to agree to the sale. In the example above, you’d need an extra £7,500 plus your selling costs before the lender would release its charge on the property.

If that’s your situation, the realistic routes are:

• Pay the gap from savings. This is the simplest route if you have the cash.
• Borrow the shortfall. Some people use an unsecured loan, but that swaps secured debt for more expensive borrowing and needs to be affordable.
• Agree a plan with your lender. If you can’t cover the gap, talk to your lender early. Some will agree a repayment arrangement for the remaining balance, although this isn’t guaranteed.

Because of the cost, selling in negative equity is generally a last resort.

What are your options if you’re in negative equity?

Your best options are usually to stay put and let equity rebuild, overpay if you can, or use a specialist deal if you need to move or remortgage. You can:

• Wait it out. If you don’t need to move, regular repayments reduce what you owe and prices often recover over time.
• Overpay your mortgage. Even modest overpayments bring your balance down towards your home’s value faster.
• Ask your current lender about a new deal. Lenders will often offer existing customers a new rate without re-checking the property’s value (a product transfer), which can help when your fixed term ends.
• Add value. Sensible improvements can nudge your home’s value back above your mortgage balance, though they’re never guaranteed to.

This is a situation where a conversation really helps, because the right route depends on how far you’re underwater, how long is left on your deal and what you need to do next.

What is equity release and how does it work?

Equity release lets homeowners aged 55 or over take tax-free cash from their home without selling it, either through a lifetime mortgage or a home reversion plan. You can take the money as a lump sum, in smaller amounts over time or a mix of both, and how you spend it is up to you.

It’s a growing part of later life finances. The Equity Release Council reports that UK homeowners released £2.57 billion in 2025, an 11% rise on the year before, with lifetime mortgages making up more than 99% of the market.

After a slow start to 2026, lending picked up again in the second quarter, rising 4% to £597 million across 13,489 customers, including 5,307 people releasing equity for the first time.

If you’d like a deeper look at the myths, our guide to the truths about equity release is a good companion read.

What is a lifetime mortgage?

A lifetime mortgage is a loan secured against your home that you repay when you die or move into long-term care, and it’s by far the most common type of equity release. You keep full ownership of your home, and in most cases you don’t have to make monthly payments, because the interest is added to the loan.

Since interest compounds, the amount you owe can grow quickly:

As an illustration, £100,000 borrowed at 6.5% would grow to around £187,700 after 10 years and £352,400 after 20 years if you made no repayments.

That’s why many plans now let you pay some of the interest or make partial repayments, and why a drawdown plan, where you take a smaller amount upfront and keep the rest in reserve, can cost less over time.

Plans from Equity Release Council members come with built-in protections. These include a no negative equity guarantee (you or your estate will never owe more than the home sells for), the right to remain in your home for life and the ability to make penalty-free partial repayments on new plans.

What is a home reversion plan?

A home reversion plan is where you sell all or part of your home to a provider in return for a lump sum or regular income, and you keep the right to live there for life. The provider then owns its share of the property, and when the home is eventually sold it receives that share of the proceeds.

Home reversion is much less common than a lifetime mortgage. Providers typically pay less than the market value for the share they buy, and some insist you’re at least 60 or 65 before you can apply. It can suit people who want to lock in a fixed amount of their home’s value now without taking on a loan that grows over time, but it isn’t right for everyone.

What happens if you inherit a house that has had equity released from it?

You can still inherit the property, but the equity release plan has to be settled first, which usually means selling the home, typically within about 12 months of the last borrower dying or moving into long-term care. The exact time limit is set out in the plan documents, so executors should contact the provider as soon as possible.

Here’s what usually happens next:

• The loan is repaid from the sale. Whatever is left after the provider has been repaid, and after sale costs, goes to the estate and then to the beneficiaries.
• Your family won’t be left with a bill. If the plan meets Equity Release Council standards, the no negative equity guarantee means the estate won’t owe more than the property sells for, even if the loan has grown larger than the home’s value.
• Keeping the house may still be possible. If you want to keep the property, you’d need to repay the loan from savings, other assets or by arranging new finance, and you’d need to talk to the provider about how that works.
• Home reversion works differently. Because the provider already owns part of the property, the home is normally sold and the proceeds are split according to each party’s share.
• A surviving partner is usually protected. If the plan was taken out in joint names, the surviving borrower can normally stay in the home on the same terms.
• Some people protect part of their inheritance. Many lifetime mortgages offer an inheritance protection feature that ring-fences a percentage of the home’s future value for your family.

On tax, the outstanding loan reduces the value of the estate, which can affect any inheritance tax due, but equity release isn’t a shortcut for avoiding it. If you gift some of the money you release, the gift can still be taxed if you die within seven years.

Is equity release right for you?

It’s only right for you if you’ve weighed up the alternatives and are comfortable that the cost to your estate and any effect on benefits is worth it. Equity release is a long-term commitment, so it’s worth looking at the options first:

• Downsizing to a smaller home to release capital without borrowing.
• A retirement interest-only mortgage or other over 50 mortgage, if you have income to make monthly payments.
• Using savings, investments or pension income before touching your home.
• Family support, if loved ones are able and willing to help.

Releasing equity won’t affect your State Pension, but it can affect means-tested benefits such as Pension Credit or Council Tax Support. A good equity release advisor will talk this through with you, ideally with your family involved, so there are no surprises.

Can you remortgage to release equity from your home?

Yes, you can remortgage to release equity by taking out a new, larger mortgage and keeping the difference as cash, provided the new loan fits within a lender’s loan-to-value limit and you can afford the repayments. This is often called remortgaging with capital raising, and it’s one of the most popular ways to use the equity you’ve built up.

Here’s how it could look…

Your home is worth £300,000 and you owe £180,000. You need £30,000 for building work, so you remortgage for £210,000, which is 70% LTV. At an illustrative rate of 5.75% over 25 years, your monthly repayment would rise from around £1,132 to around £1,321, an extra £189 a month for the £30,000.

One thing to watch is that the whole mortgage moves to the new rate, not just the extra £30,000. If your current deal is cheaper than today’s market, you could end up paying more on the money you already owe.

A mortgage broker can work out the true cost of different routes before you commit.

If your credit history isn’t perfect, don’t assume the door is closed. Our guide to a bad credit history remortgage explains your options.

What’s the difference between remortgaging and equity release?

Remortgaging means taking a new mortgage that you repay monthly over a set term, while equity release is for people aged 55 and over and usually doesn’t need monthly payments.

Remortgaging is also open to homeowners of any age who pass lenders’ affordability checks, whereas equity release is a form of later life lending where the loan is typically repaid when you die or move into long-term care.

What does it cost to remortgage, and how long does it take?

Remortgaging typically takes between four and eight weeks, and costs can include an early repayment charge, a product fee, conveyancing and a valuation. Some deals include free legal work and valuations, which is something your broker will check for you.

As a rule of thumb, start the process around six months before your current deal ends so you can lock in a rate and avoid slipping onto your lender’s standard variable rate.

If you’re thinking of switching sooner, our guide on whether you can remortgage early explains the charges to look out for.

Can you remortgage to pay for home improvements?

Yes, home improvements are one of the most common reasons homeowners remortgage, and most lenders are happy to lend for them as long as the borrowing is affordable. You’ll usually need to tell the lender what the money is for, and they may ask for quotes or plans for larger projects.

Before you go ahead, think about:

• Budget and overruns. Building projects often cost more than planned, so build in a contingency.
• Value added. Not every improvement raises your home’s value by what you spend. Ask a local estate agent which changes buyers in your area actually pay for.
• The alternatives. A further advance from your current lender or a secured loan may suit smaller projects.
• Your cover. Once the work is finished, update your building and contents insurance so that the new rebuild cost and contents are properly insured.

Can you remortgage to release equity to buy another property?

Yes, you can use money raised by remortgaging as the deposit on another property, such as a second home, a holiday let or a rental, but you’d be borrowing against your own home, so the risk is higher. Lenders will look closely at your affordability across both properties.

If the plan is to let the property out, a buy to let mortgage usually needs a deposit of around 25% (some lenders accept 15% if your finances are strong), and lenders typically want the expected rent to cover 125% to 130% of the monthly mortgage cost.

For example, a £180,000 rental would need a £45,000 deposit at 25%, leaving a £135,000 loan. If a lender uses an interest rate of 5.5% and wants 125% cover on an interest-only basis, you’d need roughly £773 a month in rent. These are illustrative figures, and lenders often test affordability at higher rates.

You’ll also need to factor in the extra stamp duty. If the purchase means you’ll own more than one property, you’ll normally pay an additional 5% on top of the standard rates.

What are the risks of releasing equity from your home?

• You’re borrowing, not receiving a windfall. Equity you release has to be repaid with interest, either monthly or, with equity release, when the home is sold.
• You lose some of your safety net. The less equity you have left, the less protection you have if prices fall.
• Interest rates can change. With a remortgage, your payments could rise when your fixed rate ends. The average two-year fixed rate rose from 4.83% in January to 5.68% in June 2026, so it pays to stress-test your budget.
• There are costs. Fees, early repayment charges and advice costs all need to be factored in.
• It can affect your estate and benefits. Equity release in particular reduces what you leave behind and can affect means-tested benefits.
• Using your home to clear short-term debts has a catch. Rolling credit cards or loans into your mortgage can cut your monthly outgoings, but you could pay far more interest overall by spreading the debt over many years.

If you’re increasing your borrowing, it’s also a good time to check your protection. Life insurance, income protection and mortgage payment protection can help keep your family in the home if the unexpected happens, and our protection advisers can review your cover free of charge.