What Should I Know About Equity And Using it As A Deposit?
If you’re selling your property, finding a deposit to purchase your next home may present a challenge. However, if you currently have equity in your existing home, you may be wondering whether you can put it down as a deposit on the home of your dreams.
At Properly, we’re often asked this question, so here is our expert insight.
What Is Equity?
Before we look at whether you can use the equity in your existing home as a deposit on a new property, let’s take a look at what equity is.
In simple terms, it’s the difference between your home’s market value and the amount that you still owe to your mortgage lender.
Although you can use your equity in different ways, one of the most common is using it as a deposit on a new property. If you do this, you can reduce the amount that you have to borrow for the new mortgage and lower your LTV (loan to value). In turn, that will give you a wider selection of mortgage product options to pick from. However, there’s one potential problem you could encounter – and that’s negative equity.
What Is Negative Equity?
If you owe more money on your remaining mortgage amount than your home is worth, this is known as “negative equity”. It occurs if there’s a dramatic drop in house prices after you’ve bought your home. If you have negative equity, it may be difficult to remortgage or move home.
Do I Have Equity In My Home?
There is a fairly straightforward formula to work out whether you have equity in your property, but you’ll need to get up-to-date figures first before beginning the calculation. You can roughly ascertain the value of your home by researching online. Look for similar properties in London that have been sold recently to get an idea of what your own home could be worth, or go to our website here https://www.properly.space/ to book a valuation.
Next, check your most recent mortgage statement to find out how much of your mortgage still needs to be paid. If you don’t have a recent statement, give your lender a call to find out your balance. Subtract the amount that you still owe from your estimated property’s value, and that will tell you the amount of potential equity that you have.
Can Equity Be Used As A Buy-To-Let Property Deposit?
You can not only use your equity in your existing property as a deposit on your next home, but you can also use it as a deposit on a buy-to-let property. As long as you have sufficient equity in your residential property, part of that cash can be released to put a deposit down on a property that you intend to buy for investment purposes.
Bear in mind, though, that a buy-to-let property will typically require a larger deposit than a residential home, so you’ll need an amount worth around 15-25% of the property’s value as a deposit.
If you’re ready to sell your home, get in touch with the team here at Properly on 0207 459 4400 or at [email protected].
We’re looking forward to helping you find your ideal new home.
