Mortgages: Equity

Mortgages

Discover why building equity matters and how it strengthens your long-term financial position.

Transcript

Equity represents the portion of the property you truly own. Equity typically increases over time if you’re making repayments and/or the property value rises.

Higher equity improves your loan-to-value or LTV ratio, unlocking access to better mortgage rates and products. More equity gives you flexibility to remortgage on favourable terms. But a low amount of equity in your home could also limit the number of mortgage providers when you want to switch mortgages.

If house prices fall, having substantial equity reduces the risk of owing more to the lender than your home is worth. Owing more than the value of the home is called negative equity. For example, let’s say you buy a house for £250,000 using a 10% deposit of £25,000 and taking out a mortgage for £225,000 on a two year fixed rate. The housing market then suffers a downturn over the next two years due to recession. Property values in your area fall 20% and your house is now worth £200,000.

You’ve managed to pay off £10,000 of the mortgage in the first two years, bringing the outstanding mortgage balance down to £215,000. However, if you needed to sell the house and got the market value of £200,000 for it, you could still owe the mortgage lender £15,000. You’d have to find the money from your savings, or take out an additional loan to cover the shortfall.

Throughout the life of your mortgage, the more equity you have in your home, the more you shield yourself from economic changes.

In short, building equity strengthens your financial position and gives you more options for the future. Whether you want to move, remortgage, or simply feel more secure in your home, growing your equity is a key part of making homeownership work for you.

Docs, Links & Resources

Related Resources go here…

All Adult Learning Modules

Budgeting

Module 1

5 videos

13 minutes

In this module, you’ll learn how to build a budget that helps you stay in control of rising costs, plan ahead and manage your money with confidence.

Woman sitting on the floor in a bright workspace, using a laptop with mood-board notes and minimal décor behind her.

Earnings

Module 2

7 videos

15 minutes

In this module, you’ll learn how to understand your pay, spot any issues early and explore the different ways you can increase your income.

Freelance

Module 3

8 videos

28 minutes

In this module, you’ll learn what freelancing really involves: from how you get paid and find clients to how to manage your money, taxes and day-to-da

Pensions

Module 4

8 videos

22 minutes

In this module, you’ll understand how pensions work, so you can plan confidently for later life.

Debt

Module 5

7 videos

18 minutes

In this module, you’ll learn how borrowing works, how to manage debt responsibly, and where to get help if it becomes hard to handle.

Credit

Module 6

6 videos

20 minutes

In this module, you’ll learn how borrowing works, how to avoid problem debt and what to do if you’re feeling overwhelmed.

Mortgages

Module 7

9 videos

37 minutes

In this module, you’ll learn how home buying works, the factors that shape affordability and how mortgages influence the overall cost.

Investing

Module 8

8 videos

27 minutes

In this module, you’ll learn how investing works, how to manage risk and how to grow your money over time.