What is mortgage equity?

Find out what mortgage equity and negative equity is here.

Mortgage equity is the difference between what you owe on your mortgage and the current value of your property.

In simple terms, equity is how much of your home that you “own”. It’s the amount that you’ve paid off your mortgage, plus how much you paid for your deposit.

If the value of your home has gone up then your equity also includes the difference between the price you bought it for and its new value.

While you’re paying off your mortgage, you’re building up equity. Every monthly repayment you make helps increase the equity in your home.


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.

What is negative equity?

Negative equity happens when what you owe on your mortgage is more than what your home is worth.

For example:

  • You owe £220,000 on your mortgage
  • Your home is worth £200,000
  • You are in negative equity of £20,000

Negative equity usually happens if there is a big drop in house prices. This could be in your area or across the country. Negative equity can be an issue if you’re looking to sell your home.

If you’re not sure if you’re in negative equity, you could have your property valued by an estate agent. If their valuation is less than what you still have to pay on your mortgage, then you could be in negative equity.

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

Calculators and tools

We have a range of mortgage calculators to help you:

  • Find out how much you could borrow from Halifax
  • See how much you could save if you make overpayments on your mortgage
  • Get an idea how a change to the Bank of England Base Rate could affect your monthly payments
Use our calculators and tools

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