Equity

Equity is the net ownership interest in a property: the value of the property minus the total outstanding secured debt (mortgage and any charges) against it.

If a property is worth £180,000 and the outstanding mortgage is £110,000, the equity is £70,000. This equity is the owner's real economic stake in the asset.

Equity builds over time through two mechanisms: capital growth (the property increases in value) and mortgage paydown (on a repayment mortgage, the capital balance reduces with each payment). Interest-only mortgages do not build equity through paydown - only capital growth adds equity.

In property investment, equity is the primary source of deposits for additional purchases. When equity reaches a sufficient level, the property can be remortgaged to release cash that funds the deposit on the next purchase. This is the mechanism by which a single starting deposit can fund a growing portfolio.

Equity can also be accessed through second charge loans or by selling the property. The tax implications of equity release (via remortgage) versus sale (triggering CGT) differ significantly.