Three Ways to Increase Equity in your home

There are three easy ways to increase the equity in your home.

Changes in the market

A change in the general level of houses will change your equity. This might be because the area is improving(or getting worse) or it may be because house price are rising in general.

Leverage

An increase in the property market is great for those with mortgages. A house purchased using a mortgage is what is called a leveraged investment, meaning that much of the cost is funded through borrowing. For example if you purchase a £100,000 house with a £10,000 deposit and a £90,000 mortgage you will have a £10,000 equity. If prices increase by 10% the house is worth £110,000, the mortgage is still £90,000 and your equity has doubled to £20,000.The disadvantage is a 10% fall in prices would wipe out the equity.

Improvements to your house

 There are lots of ways to improve houses and this acts to make your property more desirable to other potential purchasers.

It may be that improvement spend does not increase the value. This may be because the quality of workmanship is poor or it will not appeal to potential buyers. Also any new spend is likely to fall in value - a new bathroom is very pleasant, but once it has been in place for a few years it adds little to the value.

The best ways to increase value are normally to increase living space(an extension) or to add a garage.

Capital Repayments of your mortgage

Mortgages are typically offered on the basis they will be repaid. Some mortgages are interest only meaning that the amount borrowed is repaid by some other form of investment. But concerns around this kind of mortgage have been growing and so they are less common.

Repayment mortgages work on the basis that  your payments remain the same throughout the term of your mortgage(assuming interest rates remain unchanged). At the start your payments are used mostly to repay the interest, but gradually as the amount borrow is repaid more and more is used to pay off the original loan.