How much equity do you need for a secured loan?

What is equity in your home?

Equity is your property's current value minus the borrowing secured against it. Include the outstanding mortgage and any other existing secured loans.

If your home is worth £250,000 and the only borrowing secured against it is a £150,000 mortgage, you have £100,000 of equity. That is 40% of the property's value.

Use the amount still owed, rather than the original mortgage advance. Your equity can change as you repay the balance or the property's value changes.²

Equity is value held in the property. A secured loan turns some of that borrowing capacity into a new debt, with interest and repayments, while your home provides security.

How do lenders use loan to value?

Loan to value, or LTV, expresses borrowing as a percentage of a property's value. When considering a second charge mortgage, look at the existing mortgage and the proposed new secured loan together.

The basic calculation is:

Combined secured borrowing divided by property value, multiplied by 100.

Using the same £250,000 home, adding a £30,000 secured loan to the £150,000 mortgage would create £180,000 of combined borrowing. That gives a combined LTV of 72%, assuming no other secured borrowing or financed fees.

Looking only at the new loan would produce 12%. That overlooks the existing mortgage, which already uses part of the property's value as security.

A lender's maximum LTV is a limit for a particular product and application. It does not mean the lender will automatically offer that amount. Products can also have different borrowing limits and eligibility conditions.³

How much existing equity would you need?

Where a product requires some equity to remain after the loan, your existing equity needs to cover both the new borrowing and that retained amount.

For illustration, assume a lender permits a maximum combined LTV of 80%. That would leave 20% of the property's value outside the secured borrowing.

On a £250,000 home, that retained amount would be £50,000. To add a £30,000 loan balance, you would therefore need at least £80,000 of equity before borrowing, under this assumed limit.

The calculation is:

Required existing equity equals the proposed new loan balance plus the equity required to remain afterwards.

This example assumes no other changes to the mortgage and no fees added beyond the £30,000 loan balance. The 80% limit is an illustration, not a standard requirement or an available offer.

Why the same equity can produce different borrowing limits

Consider two homeowners who each have £100,000 of equity. Under the same assumed 80% combined LTV limit, the calculation gives different results.

Home A has space for additional borrowing under the assumed limit. Home B is already at that limit, despite having the same cash amount of equity.

These figures show capacity under one hypothetical LTV test only. They are before any financed fees and do not account for affordability, product limits or other lender criteria. They do not establish what either homeowner would be offered.

What if the lender values your home differently?

The value used in an application can differ from an online estimate, an estate agent's suggested asking price or what you originally paid.

Ask how the lender will assess the property. Some applications can use an automated valuation, while others need further assessment. The method depends on the lender and case.³

Suppose Home A in the table is valued at £230,000 instead of £250,000. Under the same illustrative 80% limit, maximum combined borrowing would be £184,000. After the £150,000 existing mortgage, that leaves £34,000 of capacity before financed fees.

A £20,000 change in the valuation has reduced the calculated capacity by £16,000. This is why an estimate should not be treated as confirmation that the requested loan will be available.

Do fees reduce the amount available?

They can. Broker, lender or other fees financed through the loan increase the debt, and can attract interest.⁴ Ask whether those fees are included within the lender's LTV limit and how that affects the money available for your purpose.

The figures to establish are:

1. Existing secured borrowing that will remain.
2. The new loan balance, including any financed fees.
3. The net amount available after deductions.
4. Any fees payable separately.

If an existing secured loan is being repaid as part of the transaction, make sure the calculation reflects the borrowing that will remain after completion. Counting both the old loan and its replacement would overstate that borrowing.

Why enough equity does not guarantee approval

Equity and affordability answer different questions. Equity concerns the property supporting the loan. Affordability concerns whether you can keep up repayments.

The FCA's mortgage rules require lenders to assess relevant income and expenditure. They must not base affordability on home equity or an expected rise in property prices.⁵

A homeowner may therefore pass an LTV test but be unable to borrow the calculated amount. The repayment could be too high once the existing mortgage, other commitments and normal household spending are included.

Consider how payments would fit your budget if income falls or relevant interest rates change. A longer term may reduce the monthly payment while increasing the total interest cost.⁶ Borrowing capacity should not determine how much you spend.

Does bad credit mean you need more equity?

It can affect which products you qualify for, including the available LTV limits. However, there is no universal extra equity requirement for someone with bad credit.

Lenders can consider details such as missed payments, defaults, court judgments and how credit has been managed since. Different firms assess applications differently. The score displayed by a credit reference agency is not a universal lending decision.⁷

An adviser needs the credit information alongside the property details and household budget. More equity cannot guarantee that a lender will accept a particular credit history or an unaffordable payment.⁵

Can you get a secured loan with little or no equity?

Little equity can restrict your options. A product that requires a proportion of the property's value to remain outside the borrowing will only fit if that requirement can be met.

If existing secured debt already equals the property's value, any additional borrowing would push combined LTV above 100%. Check the actual criteria before relying on a claim that no equity is needed.

Negative equity means the secured borrowing exceeds the property's value. It can also make selling or changing mortgage lenders more difficult.² An online loan calculator cannot establish whether a suitable product exists for that situation.

What can you do if there is not enough equity?

Revisit the amount needed first. A smaller project or a later start may reduce the required borrowing.

Over time, reducing the mortgage balance can improve the equity position, assuming the property's value does not fall. If considering overpayments, check affordability and any early repayment charge, and retain money for essential expenses.⁸

A further advance from your existing lender or a remortgage may use different criteria, but both still involve borrowing secured against your home. Neither automatically solves a lack of equity.⁹

An unsecured personal loan may be relevant for an appropriate amount because it does not use the property as security under the agreement. It still requires an assessment, and missed payments have serious consequences. Compare the costs and repayments before deciding.¹⁰

What if you own your home without a mortgage?

If you own the whole property without a mortgage or other secured debt, your equity equals its value. Borrowing against it would usually involve a first charge mortgage rather than a second charge behind an existing mortgage. The lender would still assess the property, affordability and other criteria.

Ask which product is appropriate for an unencumbered property, meaning one without existing secured borrowing.¹¹

Is using equity the same as equity release?

This guide covers secured borrowing with regular repayments. “Equity release” usually refers to specialist products for later life, such as lifetime mortgages and home reversion plans. Those have different features and require specialist advice.¹²

Use the product's actual name when comparing options so you understand how it is repaid and what happens to the property.

What to prepare before discussing your options

Gather current mortgage statements, details of other secured debts, an estimate of the property's value and the amount needed after fees. Include an accurate household budget. If there are other owners, shared ownership arrangements or an equity loan, explain these at the outset.

Habitat Loans introduces customers to Loans Warehouse, where a qualified broker can assess secured borrowing options. Ask which valuation, balances and LTV limit apply to your case, and how much would remain available after fees.

A suitable recommendation should explain both why the borrowing is affordable and why it fits your needs.¹³ The amount you could borrow against the property is the starting point for that discussion.