What Is Home Equity and Why Do People Track It?

If you own a home, you will probably hear the word equity quite often.

It might come up when talking about your mortgage, house prices, moving home or remortgaging. But despite being a common term, it isn't always obvious what home equity actually means — or why it changes over time.

Put simply, home equity is the portion of your property's value that you own outright, after taking your outstanding mortgage and other secured borrowing into account.

For example, if your home is currently worth £350,000 and you have £240,000 remaining on your mortgage, your estimated home equity would be:

£350,000 − £240,000 = £110,000

That's the basic calculation.

But there is more to understanding your equity than subtracting one number from another.

How is home equity calculated?

The basic formula is:

Estimated property value − outstanding mortgage balance = estimated home equity

If you have other borrowing secured against the property, that needs to be considered too.

For example:

• Estimated property value: £400,000

• Mortgage remaining: £220,000

• Other secured borrowing: £10,000

• Estimated equity: £170,000

The important word here is estimated.

Your mortgage balance can usually be established relatively precisely from your lender. Your property's current value is different.

Unless your property has just been sold, there isn't necessarily one definitive number for what it is worth today.

Your home equity isn't the same as cash in the bank

This is one of the most important things to understand.

If you have £100,000 of estimated equity, that doesn't mean you have £100,000 sitting somewhere that you can simply withdraw.

Your equity is tied up in the property.

To turn some or all of that equity into money, you would generally need to sell the property or take out additional borrowing secured against it, depending on your circumstances.

And if you sell your home, the amount you actually have left after the sale can be lower than the headline equity figure once costs such as selling expenses and the repayment of your mortgage are taken into account.

So it is useful to think of equity as ownership value within your property, rather than as a cash balance.

How do you build equity in your home?

There are several ways your equity can change.

1. Paying down your mortgage

Every time you reduce the amount of capital you owe on your mortgage, the difference between your property's value and your mortgage balance becomes larger, assuming the property value stays the same.

Imagine you bought a home for £300,000 with a £240,000 mortgage.

Your starting equity would be £60,000, ignoring other secured borrowing and transaction costs.

If your mortgage balance later falls to £220,000 and the property is still worth £300,000, your equity would be £80,000.

The property hasn't changed in value. The mortgage balance has.

2. Your property increases in value

Your equity can also increase if the value of your home rises.

Suppose your mortgage balance is £200,000.

If your home is worth £300,000, your estimated equity is £100,000.

If its estimated value later becomes £325,000 while your mortgage remains at £200,000, your estimated equity becomes £125,000.

In this situation, the increase in equity hasn't come from paying off the mortgage. It has come from the change in the estimated value of the property.

This is why equity can move even when you haven't made any additional mortgage payments.

For a closer look at how these changes work over time, see our guide to How Home Equity Changes Over Time.

3. Both can happen at the same time

In reality, these two things often happen together.

You gradually repay your mortgage while the value of your property moves up or down.

That means your equity can change for several reasons at once.

This is one reason it can be useful to look at equity as a long-term moving figure, rather than something that only matters when you are buying or selling a property.

What happens if house prices fall?

Equity doesn't always increase.

If your property falls in value, your equity can fall too.

For example:

Property value: £300,000
Mortgage: £220,000
Equity: £80,000

If the property's estimated value falls to £270,000 while the mortgage remains at £220,000:

£270,000 − £220,000 = £50,000 equity

You haven't suddenly borrowed another £30,000. The estimated value of the asset has changed.

In more extreme circumstances, the amount owed on a mortgage can become greater than the property's value. This is known as negative equity.

This is an important reason not to treat property valuations as guaranteed wealth.

What about home improvements?

Home improvements can sometimes affect a property's value, but it isn't as simple as saying that every £10,000 spent creates £10,000 of additional equity.

An extension, new kitchen, loft conversion or other improvement may make a property more valuable, but the relationship between the cost of an improvement and the property's eventual market value isn't guaranteed.

Other factors can matter too, including the location, condition of the property and what buyers are willing to pay at the time.

This is why it is better to think of improvements as something that may influence the value of your home, rather than automatically adding their cost to your equity.

Equity and your mortgage are closely connected

Your mortgage balance is one half of the equity equation.

That means understanding your mortgage isn't just about knowing what your monthly payment is.

Two homeowners could have homes worth exactly the same amount but have very different levels of equity because they have different outstanding mortgage balances.

For example:

Home A

• Property value: £350,000

• Mortgage remaining: £280,000

• Estimated equity: £70,000

Home B

• Property value: £350,000

• Mortgage remaining: £200,000

• Estimated equity: £150,000

The properties have the same estimated value.

The difference is how much remains outstanding on the mortgages.

The amount of equity you have can also be influenced by a range of other factors, which we've explored in more detail in What Affects Your Home Equity? 5 Key Factors Explained.

Equity can also be expressed as a percentage

You may also come across equity expressed as a percentage of the property's value.

Using the example above, £150,000 of equity in a £350,000 property represents approximately 43% equity.

The remaining 57% represents the proportion of the property's value covered by outstanding mortgage borrowing.

This is closely related to loan-to-value (LTV).

If a property is worth £350,000 and the mortgage is £200,000, the loan-to-value is approximately 57%.

Understanding these percentages can provide another way of looking at how your mortgage relates to your property value.

Is home equity the same as equity release?

No — and this is an important distinction.

Home equity is simply the value you have built up in your property.

Equity release refers to specific ways of accessing money tied up in a property, usually in later life.

For example, a lifetime mortgage is a type of equity release where money is borrowed against a property and generally repaid later, subject to the terms of the arrangement.

So owning £150,000 of home equity does not mean you have taken out an equity-release product.

The two concepts are related, but they are not interchangeable.

If you are considering borrowing against your property or using an equity-release product, that is a financial decision with potentially significant long-term consequences and is separate from simply tracking your equity.

Why might you want to track your home equity?

You don't need to be planning to move house or borrow money for equity to be useful information.

Tracking it can simply give you a clearer picture of how your home and mortgage are changing over time.

For example, you might want to understand:

• How much your mortgage balance has fallen

• How your estimated property value has changed

• How much estimated equity you currently have

• How your equity has changed over several years

• How much of your property value is represented by the outstanding mortgage

• Whether changes in your mortgage balance or property value are driving changes in your equity

Looking at the figure periodically can turn something that otherwise exists in mortgage statements and property estimates into a much clearer picture.

It also gives you historical context.

A single equity figure tells you where you are now.

A record of equity over several years can show how you got there.

Why the number should always be treated as an estimate

This is particularly important when using online property valuations.

A property valuation isn't the same as a completed sale.

Your home's actual market value is ultimately determined by what a buyer is willing to pay, and estimates from different sources can vary.

If you use an estimated property value to calculate your equity, your equity figure will therefore also be an estimate.

That doesn't make tracking it pointless.

It simply means that equity tracking is most useful for understanding trends and changes, rather than treating the number as an exact amount of cash you own.

What can cause your equity to change?

It's useful to think about equity as the result of two moving parts:

Your property value

and

your outstanding secured debt.

Your equity can therefore change because:

• Your mortgage balance falls

• Your mortgage balance increases through additional borrowing

• Your property value rises

• Your property value falls

• You add or repay other secured borrowing

• A combination of these things happens at the same time

That is why equity isn't a figure you calculate once and forget about.

A simple way to think about home equity

If all the terminology starts to get confusing, remember this:

Your home has a value.

You may owe money against it.

The difference between the two is your equity.

As you repay your mortgage, your debt generally falls.

As your property value changes, the other side of the calculation changes too.

Your equity is therefore a snapshot of the relationship between your home's estimated value and the debt secured against it at a particular point in time.

It isn't a prediction of what your home will be worth tomorrow, and it isn't automatically money that you can spend.

It is simply a useful way of understanding the ownership value you have built up in your home.

Tracking your equity over time

For many homeowners, the most useful part isn't knowing today's figure.

It's being able to look back and understand how that figure has changed.

That could mean seeing your mortgage balance gradually fall, watching estimated property values move over time, or simply having a clearer record of how much equity you have built up.

Orddu's Equity Insight is designed around that idea. It brings your mortgage and estimated property value information together so you can see your estimated equity over time, rather than having to work it out from different sources.

The aim is visibility: giving homeowners a clearer picture of their property and mortgage without turning an information tool into financial advice.

Important disclaimer

This article is for general informational purposes only and does not constitute financial advice. Property values are estimates and can rise or fall, and your actual equity may differ from any calculation based on an estimated property value. Mortgage and secured borrowing arrangements vary between individuals. If you are considering borrowing against your home, remortgaging, selling, or using an equity-release product, consider obtaining appropriate professional financial advice.

Connect

Join our community and simplify home management today.

Support

Join Our Community Today

contact@orddu.co.uk

© 2025. All rights reserved.

Privacy Policy

Terms of Use

Stay updated on home management tips and features.