Understanding equity and your home

Understanding what equity means helps you make clear choices about your money and your property. If you are managing debt, knowing how much of your home you actually own is a great first step. We are here to explain how it works and guide you through your options.

What is equity?

Equity is the part of your home that belongs to you. It is the difference between what your home is worth and what you still owe on your mortgage or secured loans.

For example, if your home is worth £150,000 and you owe £100,000, your equity is £50,000.

If this sounds confusing, our trained advisors can help work this out for you when you get in touch with us.

What is equity release?

Equity release is a process that lets you turn some of your home’s value into cash. It might be suitable if you are a homeowner aged 55 or over with a very small mortgage or no mortgage at all.

A third party loans you money. You agree to repay this loan when your property is sold. This usually happens when you pass away or move into permanent long-term care.

Many homeowners use equity release to bring their debts together into one place or to create extra income for their retirement.

How does equity release work?

There are two main ways to release equity from your home:

• Home Reversion Plans: You sell part or all of your home in exchange for a cash lump sum. This amount is usually less than the market value of the property. You can keep living there. When the home is eventually sold, the provider takes their agreed share of the money.
• Lifetime Mortgages: You receive a loan from a provider, usually with a fixed interest rate. You do not make monthly payments. The loan is paid off when your home is sold after your death or when you move into long-term care.

Are there disadvantages to equity release?

Yes, there are a few important things to consider. Taking out an equity release plan almost always reduces the amount of money your loved ones will inherit.

It can also make moving house complicated. The company that provided the loan has a claim on your property. If you plan to move after starting an agreement, check your options with your provider.

Will a debt solution affect my equity?

Yes, different debt solutions affect your home in different ways.

• Debt Management Plan: This does not directly change your equity but it offers no legal protection from your home being repossessed.
• Individual Voluntary Arrangement (IVA): Under the new 2025 protocols, an IVA protects your home.
• Bankruptcy: This solution could mean you have to release equity or sell your home.

What is negative equity?

Negative equity means your mortgage is higher than the current value of your property.

For example, if your house is valued at £250,000 but your outstanding mortgage is £275,000, you have £25,000 of negative equity. This affects the people named on the mortgage.

Should I be worried about negative equity?

If you are up to date with your mortgage payments and do not plan to sell your property, negative equity is not an immediate problem.

It only becomes a concern if you want to sell. Your lender might stop the sale because there would not be enough money to clear the mortgage. Sometimes, a lender might allow you to sell and transfer the negative equity amount to your new mortgage.

If you are concerned, contact your lender directly to talk about your account.

How can I find out if I am in negative equity?

You can ask a local estate agent for a free house valuation or use websites like Rightmove or Zoopla to get an estimate.

Once you know the value of your property, ask your lender how much you still owe. You can then compare the two numbers.

What can I do about negative equity?

If you can afford it, overpaying on your mortgage brings the balance down faster and eases the negative equity. Always check with your mortgage lender before doing this.

You could also choose to rent your property out, subject to your lender’s approval. If the rent income is higher than your mortgage payment, you can use the extra money to reduce your outstanding balance.

Worried about your home or equity?

If you’re struggling with debt, negative equity or worried about keeping your home safe, get free, confidential advice online or call 0800 316 1833 to speak to one of our experts. We’re here to help you understand your options and find a practical solution.