What is mortgage equity?

Find out what mortgage equity and negative equity is here.

For example:

Your house is worth £200,000.

You have £170,000 still to pay on your mortgage.

The equity you have in your home is £30,000, so 15% equity.

Once you’ve paid your mortgage off, you’ll have 100% of the equity.

How to build equity in your home

There are lots of ways the equity in your property can increase:

Mortgage payments - Making payments as normal will pay off your mortgage so you owe less. This means your equity will increase
Property value increases – If your home is worth more than when you bought it, you’ll have more equity in it. This could be from rising house prices in your area, so keep an eye on the housing market where you live
Home improvements – Making home improvements can add value to your home. If your home is worth more than when you bought it, you’ll gain equity

How to work out the equity you have in your home

To roughly calculate how much equity you have in your home:

Get a local estate agent to value your property
If you can’t do this, try looking at local house prices for properties similar to yours
Compare the valuation to how much you have left to repay on your mortgage. You’ll be able to request this from your lender and will be shown on your annual mortgage statement
The difference between these two figures is how much equity you have in your home

Why it’s good to build equity in your home

Building the amount of equity in your home could help you to buy a more expensive home in the future. It can also mean you are less likely to have negative equity.

The best way to build equity is to pay a bigger deposit when you buy your property.

For example:

If you buy a £200,000 home and put down a 20% deposit, you will have £40,000 equity in your home from the start
If you put down a 10% deposit, you will have £20,000 of equity

If you’re able to overpay on your mortgage, you’ll build equity faster. Make sure you check if there are any limits on overpayments. Overpaying more than your lender allows could mean you’ll be hit with an early repayment charge.

The content on this page is for reference and does not constitute financial advice. For impartial financial advice, we recommend government bodies like MoneyHelper.