Using Existing Equity to Grow Your Portfolio

Equity is what your property is worth minus what you owe. If your home is worth $1,045,000 and you owe $468,900, your equity is $576,100. But lenders do not usually let you borrow all of it.

Usable equity is generally 80% of the property's value minus your current loan. Going above 80% is sometimes possible but usually triggers LMI (lenders mortgage insurance), a one-off premium that protects the lender, not you.

First, the lender values your property. This can be a desktop valuation or a full inspection, and it is often more conservative than online estimates. Next, the lender assesses whether you can service the extra borrowing alongside your existing debts.

If approved, the equity is usually set up as a separate loan split, sometimes called an equity release or top-up. You then use that split for the deposit and purchase costs on your next property.

Interest deductibility generally depends on what the borrowed money is used for, not which property secures it. Keeping the equity release in its own split, used only for investment purposes, makes the records much clearer. Please speak to your accountant about the tax side, as we cannot give tax advice.

We also prefer to avoid tying properties together where possible. When one loan is secured by two properties (cross-collateralisation), selling or refinancing one can become complicated and the lender has more control.

Borrowing against your home increases the debt secured by the place you live. If values fall, your equity shrinks and you could owe more than you expected relative to the value. If rates rise, repayments on every split rise too.

That is why we suggest keeping some usable equity or cash unused as a buffer, rather than drawing down every last dollar.

It is often smart to arrange your equity release before you start looking for the next property. That way you know exactly what you have to work with, you can make offers with confidence, and you are not rushing a valuation or approval while a contract deadline is ticking.

Remember that both your equity and your borrowing capacity change over time. A strong year of price growth can lift your equity, while a rate rise or a new car loan can shrink your capacity. Checking both together, ideally once a year, gives you a clear view of when the next step is realistic and helps you avoid buying before you are ready.

If your current lender is slow, restrictive or values conservatively, refinancing to a different lender as part of the equity release can be worth considering, though it adds a little time and cost.

Finally, think about what happens after the purchase. Once the new property settles, your remaining usable equity, buffer and borrowing capacity will all look different, so it is worth re-checking them before planning anything further.