What is Equity and How Do Property Investors Use it?

On this webpage you will find an explanation of what property equity and loan to value (LTV) are as well as details of how property professionals use it to refinance investment properties to and turbo boost their profits.

Okay lets get down to business.

Equity, is the real cash value of the property after any claims, loans etc. have been taken into account.

For example: you have a property that is worth £200,000 on the open market and the mortgage on it is £150,000. You would, therefore, have £50,000 in equity because £200,000 - £150,000 = £50,000. This would be £50,000 in positive equity.

However, if you buy a property and have a mortgage for £200,000 on it and the property market then crashes so that the property is only worth £150,000, then you would have £50,000 of negative equity in the property, because the property is worth £50,000 less than your mortgage.

Loan to value (LTV) This is basically the amount expressed as a percentage that a lender is prepared to lend against the value of any given property. Buy-to-let properties normally have to have their own specific mortgages, which are called buy to let mortgages. Normally the LTV (Loan To Value) on these is 85%.

For example: you are buying a Buy to Let property and the price of the property is £100,000. The bank will only lend you 85% i.e. £85,000. This means you have an 85% LTV mortgage and you will have to fund the rest in some other way e.g. savings etc.

There are exceptions to the 85% LTV, but it depends on your situation. You will learn later potential ways of getting around this, because you would be out of pocket very quickly if you had to fork out £15,000 for every property you bought costing £100,000.

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Property investors and developers use the equity in their existing portfolio to help them finance investment property. They can use it as deposits or as a way to fund the development of a project. So it can go towards things like paying builders, architects and just about anyone or for anything else.

Many novices even use it to start of their property career by releasing money from their existing home. This is one of the main ways that beginners get into the game of property investing and developing since it allows them assess to a lot of money on a long term bases.

The right buy to let mortgages advice is crucial for the property investor that wants to grow his portfolio quickly and effectively by continually remortgaging and releasing more funds to keep growing.

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