Using Equity to Buy Another House: Expert Guide

Equity is the difference between your home’s market value and what you still owe on your mortgage. Let’s say your home is worth £400,000 and you still owe £250,000 on your mortgage – that means you have £150,000 in equity. Your property portfolio can grow a lot when you use this equity to buy another house. Some investors have built property portfolios worth over £1 million in just six years by using the right strategies.

You can use equity by borrowing against your current property’s value to fund a new purchase. Most lenders will give you a loan only if you keep 20-25% equity in your existing home. This rule will give a safety buffer and let you make the most of your property’s value.

We’ll show you everything you need to know about using your home’s equity. You’ll learn about checking your finances, picking the right loan, and buying your next property. We’ll break down each step to make it simple.

Home equity shows how much of your property you actually own. You need to really understand this concept before you tap into your equity to buy another house. Let’s learn what equity means, how it builds up, and how you can figure out what’s available to you.

What is home equity?

Home equity is the part of your home you fully own. It’s the difference between your property’s current market value and what you still owe on your mortgage. To cite an instance, if your property is worth £250,000 and you still owe £100,000 on your mortgage, you have £150,000 in equity.

The sort of thing I love about equity is that it’s a financial asset that grows as you own your home. It represents the money you’d get if you sold your property today after paying off your mortgage debt.

The ICE Mortgage Monitor Report for March 2025 shows British homeowners with a mortgage have about £248,572 in home equity on average. These numbers emphasise why many people see using equity to buy another house as a good way to build wealth.

How equity builds over time

Your home equity grows in several ways. Your original down payment creates your first equity position. Your equity grows each time you make a mortgage payment, and so your ownership stake increases.

Your property’s value plays a vital role in equity growth. Your equity expands as your home’s market value goes up while your mortgage balance stays the same or drops. Strong housing markets can lead to big jumps in equity.

It also helps to know you can build equity faster through these strategies:

• Making bigger monthly mortgage payments
• Adding lump-sum payments when you can
• Getting rid of private mortgage insurance at 20% equity
• Picking shorter loan terms during refinancing
• Making valuable home improvements

Your equity might drop if property values fall during market downturns. In the worst case, you could end up with negative equity—owing more than your home’s worth.

How to calculate your available equity

You just need two pieces of information and a simple calculation to find your available equity:

1. Get your property’s current market value by:
   • Asking local estate agents for estimates
   • Looking up similar properties on Rightmove or Zoopla
   • Using online valuation tools
2. Find your mortgage balance from:
   • Your latest mortgage statement
   • Your online mortgage account
   • Your lender directly
3. Use this simple formula: Home Equity = Current Property Value – Outstanding Mortgage Balance

To cite an instance, if your property is worth £400,000 and you still owe £200,000, your equity is £200,000.

You can find your equity percentage by dividing your equity by the property value and multiplying by 100. Using our example: £200,000 ÷ £400,000 = 0.5, or 50% equity.

Your equity percentage matters especially when you want to use equity to buy another house. Lenders usually want you to keep 20-25% equity in your current property before they’ll let you access funds to buy another one.

Using your home’s equity provides a powerful way to grow your property portfolio without starting fresh. Many property investors find this approach attractive because it helps them use the value in their existing homes for new investment opportunities.

Benefits of using equity for property investment

Your property’s equity can fund another purchase with several key advantages. You can quickly grab market opportunities without saving a large cash deposit from scratch. Quick access becomes vital when housing markets heat up.

Secured loans against property come with lower interest rates than unsecured personal loans. This makes equity-based borrowing a cost-effective choice for property investors.

From an investment standpoint, equity helps you vary your property portfolio and spread risk across multiple assets. Property values tend to rise over time, which means you could see capital growth on several properties at once.

The interest on loans used for investment properties might qualify as a tax deduction, which could boost your returns. Buy-to-let properties can generate steady rental income, but you need to factor in loan payments and regular expenses.

How do you use equity to buy another house?

Start by working out your available equity – subtract your outstanding mortgage from your property’s current market value. Here’s an example: A property worth £350,000 with £250,000 left on the mortgage gives you £100,000 in equity.

The next step is calculating your usable equity. Lenders typically let you access up to 80% of your property’s value minus what you still owe. In our example, you could tap into £30,000 of equity (£350,000 × 0.80 – £250,000).

After determining your available equity, you have several financing options:

• Remortgaging – Get a bigger mortgage to release equity directly
• Further advance – Get extra funds from your current lender while keeping your original mortgage
• Second charge mortgage – Take a new loan against your home from a different lender
• Let-to-buy arrangement – Switch your current home to a buy-to-let mortgage and use the released money as a deposit for a new home

Real-life examples of equity-based purchases

Let’s look at this real-life scenario: A homeowner uses £60,000 from their £150,000 equity as a down payment on a £240,000 rental property. The monthly rent of £1,750 covers the mortgage and leaves some profit after expenses.

Some homeowners use equity release to buy second homes or holiday properties. They keep their main home while getting a property for weekend trips or holiday rentals.

This strategy has helped many investors build substantial property portfolios. Success depends on rental income covering mortgage payments and property expenses, plus keeping enough money aside for empty periods, repairs, and surprises.

Using home equity to buy more properties needs careful financial planning. A well-executed plan can become an effective way to build wealth that uses your existing assets to create new income streams and opportunities for capital growth.

The time is right to assess your financial situation before using your home’s equity to buy another property. The core team at lending institutions will look at everything in your finances before they approve equity-based loans for additional properties.

Check your credit score and income stability

Your credit score is a vital part of getting approved. You’ll need a minimum score of 680 for home equity loans, though some lenders might accept scores as low as 620. Better scores mean higher chances of approval and lower interest rates. HSBC offers their Premier customers loans up to 6.5 times their income with a loan-to-value (LTV) that goes up to 90%.

Your income stability is just as important as your credit score. Lenders will take a close look at your finances because you need to show you can handle two mortgages at once. You should have these documents ready:

• A passport or a driving licence for identification
• Papers that prove your employment
• Your latest payslips or tax returns

Mortgageable offers a free Equifax Credit Report as part of its service, with no obligation to proceed. Something worth considering.

Understand your borrowing capacity

Lenders look at two significant numbers to assess how much you can borrow:

Your debt-to-income ratio (DTI) shows how much of your monthly income pays for your debts. Lenders want to see a DTI ratio of 43% or less. You’ll get this number by dividing your monthly debt payments by your gross monthly income.

Income multiples help set your maximum borrowing limit. Lenders usually give 4.5 to 5 times your yearly salary, but this can go up to 6 times for strong borrowers. Second homes need bigger deposits—at least 15%, and many lenders ask for 25%.

Get pre-approval from lenders

Getting mortgage pre-approval is a significant step in using equity to buy another house. The process includes a soft credit check that won’t hurt your credit score and shows you exactly how much you can borrow.

Your mortgage pre-approval, also known as an Agreement in Principle (AIP), stays valid for 30-90 days. This gives you a clear budget and makes estate agents and sellers take you seriously.

A mortgage broker can make this process easier. They are familiar with the entire mortgage market and can find options that perfectly match your situation.

You need to think about the best way to use your property’s equity based on your situation. Each option has its benefits and drawbacks that you should weigh against your financial goals.

Remortgaging your current home

Remortgaging replaces your existing mortgage with a new one from your current lender or a different provider. This lets you borrow more than your current balance and get the difference as cash. The interest rates are lower compared to other equity release methods, making it budget-friendly for long-term borrowing.

All the same, you might face early repayment charges if you’re still in a fixed period. The timing plays a vital role—you’ll get the best deal by remortgaging near the end of your current term. Your overall debt and loan term will increase, which could mean paying more interest over time.

Further advance vs second charge mortgage

A further advance lets you borrow extra money from your existing mortgage lender while keeping your original mortgage terms intact. The process moves quickly since your lender has your information. A second charge mortgage works differently—it’s a separate loan secured against your property through a different lender.

Second charge mortgages come with higher interest rates than first mortgages because the lender takes on more risk. These mortgages are a great way to get funding when:

• You have an excellent existing rate you don’t want to lose
• Your current mortgage has big early repayment penalties
• Your financial situation has changed since getting your first mortgage

Let-to-buy strategy explained

Let-to-buy helps you remortgage your current home to a buy-to-let product while buying a new primary residence. This strategy lets you rent out your original property and move into a new home.

The rental income should cover the mortgage payments on the original property. Lenders usually want the expected rent to be at least 125% of the mortgage payment. Your existing property must stay as your main residence until the deal is complete.

When to get a home equity loan or HELOC

Home equity loans give you a lump sum with fixed interest rates and predictable repayments. Home Equity Lines of Credit (HELOCs) offer flexible borrowing with variable rates. HELOCs might work better if interest rates are likely to drop—they’re at a 23-year high now but should fall soon.

Whatever you choose, both options offer lower interest rates than unsecured loans because they use your property as collateral. You’ll need to keep at least 20-25% equity in your existing property after borrowing. This protects both you and the lender from taking on too much debt.

A systematic approach helps you realise your property’s value. Here’s how you can use equity to buy another house.

1. Calculate your equity

Start by finding out your available equity. Take your property’s current market value and subtract what you still owe on the mortgage. To name just one example, a home worth £300,000 with £150,000 owed gives you £150,000 in equity. Keep in mind that lenders usually let you access 80% of your property’s value minus your remaining mortgage. You might need a professional valuation to get the exact figure.

2. Speak to a mortgage advisor

A mortgage advisor plays a vital part in helping you navigate equity release options. They look at your finances and suggest the right mortgage products. Their knowledge helps you understand your choices – from fixed-rate to variable-rate mortgages – based on your situation. On top of that, they can access exclusive deals you won’t find as a consumer, which could save you thousands down the road.

3. Choose the right financial product

Pick the best financial product after getting expert advice. You can remortgage your current home, take a further advance, or apply for a second charge mortgage. You might want a home equity loan for a lump sum or a HELOC if you need flexible credit access. Each option comes with its own interest rates, terms and ways to pay back.

4. Search and secure your next property

Your property search begins once you have financing in place. Your approved equity release amount should guide your budget. Look at location, rental yield potential (for investments), and long-term growth prospects. Note that second homes come with higher stamp duty – usually 3% above normal rates.

5. Finalise the purchase and new mortgage

The final step involves completing your purchase. You’ll need to set up the mortgage on your new property while arranging equity release from your current home. Budget for all costs, including solicitor fees, valuation charges, and possible mortgage arrangement fees. Make sure you check all terms carefully – some lenders might limit your ability to make your second home your main residence later.

Related reading: 

• Reasons for remortgaging.
• Remortgaging to release equity.
• Remortgaging to buy another property.
• Remortgaging with bad credit.
• Remortgaging for home improvements.
• I own my house outright can I remortgage? 
• Capital raising mortgages.

Home equity can be a powerful way to buy another house and build your property portfolio. In this piece, you’ve discovered how equity works, why it makes financial sense for many investors, and the exact steps you need to take to access your property’s value.

Without doubt, using your existing property helps you avoid saving for another deposit from scratch. On top of that, financing options like remortgaging and second charge mortgages give you flexibility based on your situation.

You should really assess if you’re financially ready before moving forward. Your credit score, income stability, and borrowing capacity substantially affect your chances of getting good terms. A chat with a mortgage advisor helps you find the best path forward, especially when you’re dealing with complex property investments.

Your choice between equity release methods mostly depends on your current mortgage terms, financial goals, and tax situation. Each option has clear benefits and potential risks that need to be considered with your investment strategy.

Property investment through equity release needs careful planning and realistic expectations. Many homeowners build substantial portfolios this way, but success depends on keeping enough financial reserves and making sure rental income covers your expenses.

You now have all the knowledge to make smart decisions about using your home’s value to secure more properties. The property ladder is waiting—take that next step with confidence.

Using home equity to purchase additional properties can be a powerful wealth-building strategy when executed properly. Here are the essential insights every homeowner should understand:

• Calculate your usable equity: Most lenders allow access to 80% of your property’s value minus outstanding mortgage debt, requiring you to maintain 20-25% equity in your existing home.

• Assess financial readiness first: Ensure you have a credit score of at least 680, stable income, and a debt-to-income ratio below 43% before applying for equity-based financing.

• Choose the right financing method: Consider remortgaging for lower rates, second charge mortgages to preserve existing deals, or let-to-buy strategies for rental income generation.

• Work with mortgage advisors: Professional guidance helps navigate complex options and secure exclusive deals that aren’t available directly to consumers.

• Plan for additional costs: Factor in higher stamp duty (additional 3% for second homes), solicitor fees, and ongoing property expenses when budgeting your investment.

The key to success lies in maintaining adequate financial reserves whilst ensuring any rental income covers mortgage payments and property expenses. With UK house prices averaging 6.7% annual growth since 1982, leveraging your existing property’s value can unlock significant investment opportunities for building long-term wealth.