Property equity refers to the value of a homeowner’s interest in a property. It is the difference between the value of the property and the amount of money that is still owed on any mortgages or loans secured against it.
For example, if a property is worth £300,000 and the owner still owes £150,000 on their mortgage, their property equity would be £150,000.
Property equity can be built up in a number of ways, such as:
- Paying off the mortgage: As the mortgage balance decreases, the property equity increases.
- Improving the property: Making improvements to the property, such as renovating or extending, can increase its value and therefore increase the property equity.
- Market value appreciation: If the value of the property increases due to market forces, such as demand for property in a particular area, the property equity will also increase.
Property equity can be an important consideration for homeowners for a number of reasons. For example, if a homeowner has built up a significant amount of equity in their property, they may be able to use it as security for a loan or mortgage on more favourable terms. In addition, property equity can provide homeowners with financial security and the ability to access funds in times of need.
To recap, equity is the value of a property owned outright by an individual (versus the value they are still required to make mortgage repayments on).
