Mortgage Equity – How It Works & How to Use It
If you own a home in the UK, there’s a good chance you’ve built up something valuable without even realising it — mortgage equity. It’s one of the most powerful tools homeowners can use to improve their finances, fund big goals, or even build wealth through property investing.
Here’s how it works, why it matters, and how you can make the most of it.
What Is Mortgage Equity?
Mortgage equity is simply the difference between the current market value of your home and the amount you still owe on your mortgage.
For example:
If your home is worth £400,000 and your remaining mortgage balance is £250,000, your equity is £150,000.
That’s money you technically own — it’s just tied up in your property.
How Equity Builds Up
Your home equity can grow in two main ways:
Paying down your mortgage – Every monthly repayment reduces your loan balance, slowly increasing your ownership share of the property.
Property value growth – If the housing market rises or you’ve made improvements that boost your home’s value, your equity increases too.
Over time, these two factors can add up to a substantial amount — especially if you’ve owned your home for several years.
How You Can Access Your Equity
You can’t spend equity directly, but you can release it through a few main methods:
Remortgaging – Switch to a new mortgage that’s larger than your current balance, taking the difference as a lump sum.
Equity release schemes – Typically for older homeowners (aged 55+), this allows you to access your property wealth without monthly repayments.
Selling your home – Of course, the most direct way to unlock all your equity is by selling and downsizing.
Each option has different costs and implications, so always compare deals and seek advice if you’re unsure.
Using Your Equity to Invest in Property
One of the smartest ways to use your home equity is as a deposit on an investment property. By remortgaging your home and freeing up part of your equity, you can fund the deposit for a buy-to-let purchase — effectively using your existing property to build a portfolio.
If this idea interests you, see our guide on Investment Property Structuring for practical steps on how to make it work, from setting up a limited company to managing rental income efficiently.
The Pros and Cons of Releasing Equity
Pros:
Access cash for home improvements, investments, or big life goals
Potential to grow your wealth through property or other investments
Often lower interest rates compared to personal loans
Cons:
Increases your mortgage debt and monthly repayments
Your home could be at risk if you can’t keep up repayments
If property prices fall, you could lose some of your equity cushion
Always weigh the benefits against the risks and think long-term before borrowing against your home.
When It Might Make Sense
Releasing equity could be worth considering if:
You want to fund a renovation that adds value to your home
You’re looking to invest in property or other long-term assets
You have strong income stability and can comfortably manage higher repayments
If your goal is simply short-term spending or debt consolidation, a remortgage might not be the best option — alternatives like a personal loan or budgeting adjustments could make more sense.
Key Takeaway
Mortgage equity isn’t just a number — it’s a financial resource that can help you move forward. Whether you want to renovate, invest, or plan for retirement, understanding and managing your equity wisely can unlock new opportunities.
Before making a decision, always compare remortgage deals and consider professional advice to ensure you’re using your home’s value in the smartest possible way.
