Home equity explained
Home equity is the part of your home you own outright. It decides your rate band, how much more you could borrow, and what each option costs.
Quick answer
Home equity is what your home is worth minus what you owe on it. A £400,000 home with a £300,000 mortgage has £100,000 of equity, which is 25% of its value, so the loan to value, or LTV, is 75%.
Equity grows two ways: as you repay the mortgage and as prices rise. More equity usually means a lower rate band when you remortgage, and it is what lenders lend against if you want to borrow more.
Updated today
Four ways to use your equity
- RateA lower LTV band can mean a cheaper rate.
- BorrowRaise money for home improvements.
- LenderA further advance from your current lender.
- MoveA bigger deposit on your next home.
Your home equity in Theo
- Equity calculatorWhat you own
- LTV band finderThe next cheaper band
- Borrowing moreHow much, and what limits it
- Further advanceOr a remortgage?
How equity grows
- RepayingEvery payment cuts what you owe.
- PricesA rising value adds equity.
- OverpayingSpeeds it up, often up to 10% a year.
Close to a cheaper band?
Theo shows how close you are.
Rates by equity band today
| Loan to value | Average 2 year fix | Average 5 year fix |
|---|---|---|
| Loading | ||
| Loan to value | Equity | What it usually means |
|---|---|---|
| 60% or less | 40% or more | Usually the very lowest rates |
| 75% | 25% | Some of the sharpest mainstream pricing |
| 80% | 20% | A common remortgage landing point |
| 85% | 15% | Where many lenders cap borrowing more |
| 90% | 10% | Fewer lenders, higher rates |
| 95% | 5% | The narrowest choice |
More equity, cheaper bands
Each step down in LTV usually means a lower rate. The calculators show how far you are from the next one.
What home equity is
Home equity is the value of your home minus the mortgage on it. If your home is worth £400,000 and you owe £300,000, you have £100,000 of equity. Lenders look at the same thing the other way round, as loan to value: £300,000 owed on a £400,000 home is 75% LTV. See loan to value explained and how much equity you have.
Why your equity matters
Lenders price mortgages in LTV bands, usually 60%, 65%, 70%, 75%, 80%, 85%, 90% and 95%. The more equity you have, the lower your band and, usually, the lower your rate. That is why a remortgage can be cheaper than your first mortgage even when rates have not moved: your equity has grown. The live table above shows today’s averages for each band.
Ways to use your equity
A cheaper rate. When your deal ends, a lower LTV band can mean a lower rate. Borrowing more. You can remortgage to release equity for home improvements or other purposes, usually up to about 85% of your home’s value. A further advance. Your current lender may lend you more on top of your existing deal, see further advances. Moving home. Your equity becomes the deposit on your next home.
Equity release for people aged 55 and over, such as a lifetime mortgage, is a different product with different risks, and needs specialist advice.
How your equity grows
Every repayment reduces what you owe, so equity grows even if prices stand still. Rising prices add to it, falling prices take it away. Overpaying speeds it up, and most fixed rates allow up to 10% of the balance a year without a charge. See the overpayment calculator.
If prices fall
If your home is worth less than you owe, you are in negative equity. It only becomes a problem if you need to sell or remortgage, because lenders lend against value. Staying with your current lender on a product transfer usually needs no new valuation, which is why it can help in that situation. See product transfer or remortgage.
Common questions
What is home equity?
How do I work out my equity?
How much equity can I release?
Does more equity get me a better rate?
What is negative equity?
Keep exploring
Loan to value (LTV)What it means, and the band you are in.
How much equity do I have?Worked out, with the next cheaper band.
Remortgage to release equityHow much more you could borrow.
Further advanceBorrow more from your lender, or move?
Remortgaging explainedHow it works, when to start and what it costs.
Buying a homeEvery step, every cost, and the tools for each.
Theo App Ltd is not authorised by the Financial Conduct Authority and does not give mortgage advice. This page is information only and is not a recommendation. Averages are a guide to the market, not offers. Speak to an FCA-authorised mortgage adviser about your own circumstances.
Your home may be repossessed if you do not keep up repayments on your mortgage.