Using equity to buy property guide Australia

Property equity and usable equity

Market value is not the same as a lender’s accepted valuation. Usable equity is often considered using a maximum acceptable LVR less the current loan balance and other secured debt. The result can change when the valuation or lender policy changes.

Equity may be relevant to an owner-occupied purchase, an investment property loan or another property purpose. It should not be treated as cash that is available without increasing debt.

How borrowers may access equity

• Refinance an existing loan and release part of the difference.
• Apply for a loan top-up or separate split where available.
• Use existing property as additional security for a new purchase.
• Structure a deposit contribution alongside a new property loan.

The right approach depends on ownership, loan structure, security, lender policy and the purpose of the funds. Fees may include valuation, application, discharge or legal costs.

Serviceability, buffers and LVR

The lender still considers income, expenses, dependants, existing commitments, proposed repayments and assessment buffers. Rental income may be treated differently from salary, and the new property’s value and purpose matter. A borrowing capacity review should include the extra debt rather than focusing only on the equity figure.

Consider whether repayments remain manageable if rates, vacancies, maintenance or household expenses change. A refinance review should compare the whole cost and loan term.

Risks and common mistakes

• Assuming an online estimate equals a lender valuation.
• Using all available equity and leaving no buffer.
• Increasing debt for an investment without testing cash flow.
• Overlooking cross-collateralisation or security implications.
• Assuming equity means approval regardless of income and liabilities.

Increasing debt can place the existing property and future plans under greater pressure if income falls or costs rise.