Equity is the remaining value of your property after completely repaying all loans outstanding on it. It is against this remaining or free equity that any secured loan provider will judge the maximum they are willing to lend.

In order to determine your free equity, the secured loan company will need to know the current market valuation of the property.

This is normally obtained by carrying out a new valuation, but in exceptional circumstances it can be obtained from a recent valuation if you are taking out a further UK secured loan from the company that you recently borrowed from, for example a further advance form the mortgage company you used to originally buy the property in the recent past. The cost of a new valuation, if needed, will normally either be paid for by you, the borrower, at the time of requesting the loan, or be absorbed into the capital debt (the amount you wish to borrow) and repaid over the term of the loan.

To this valuation figure, your secured loan provider will apply a ‘loan-to-value’ percentage to determine the maximum indebtedness they will accept. The loan-to-value represents the level of risk that the lender is willing to accept against the value of the property.

Some UK secured loan companies are willing to take a larger risk than others by applying a higher loan-to-value, some as high as 125%. This means, in this instance, they will lend an amount that takes the total of all secured loan debts up to 125% of the property’s current market value. It is often the case that lenders offering higher loan-to-value percentages balance the higher risk by requiring a higher interest rate on repayments. Be sure to check if you live in a shared ownership property and you are looking to borrow an amount that takes all secured loans outstanding towards the value of your share, that the loan-to-value applied to your portion of the property will be the normal percentage.

The other figure required is the total amount owed under legal charges ,which are legal claims to an amount of money, be paid off before the property owner can sell the property, that are registered against your property. The list of legal charges can be obtained from a Land Registry search, which will detail all parties that have a lien (legal charge) registered against the property, from whom settlement figures can be obtained to determine the total outstanding.

Provided the total debt, including the new secured loan, is less than the valuation after applying the loan-to-value percentage, you have enough free equity.