Equity Explained: What It Means for Your Property and Business
When you hear the word "equity," most people think of money, but it’s really about ownership. Whether you own a slice of a house, a share in a startup, or a part of a pension plan, equity tells you how much of the asset belongs to you. Knowing your equity helps you make better decisions about selling, borrowing, or growing your investment.
What Is Equity in Simple Terms?
Equity is the part of an asset you actually own after any debts are paid off. In a house, it’s the market value minus the mortgage balance. In a company, it’s the number of shares you hold divided by the total shares issued. The higher your equity, the more control you usually have and the more value you can unlock.
Take a homeowner who bought a property for £200,000 with a £120,000 mortgage. If the house is now worth £250,000, the equity is £130,000 (£250k – £120k). That £130k can be used as cash for renovations, a new purchase, or a loan.
In a business, imagine a startup that issued 1,000,000 shares. If you own 100,000 shares, you hold a 10% equity stake. That 10% gives you voting rights, a share of profits, and a say in big decisions. It also means your slice of the company’s value will rise or fall with its performance.
How to Calculate and Use Your Equity
Calculating equity is straightforward. For real estate, use this formula:
Equity = Current Market Value – Outstanding Debt
For businesses, the formula is:
Equity Percentage = (Your Shares ÷ Total Shares) × 100
Knowing the number helps you decide when to sell, refinance, or bring in partners. If your house equity is growing, you might qualify for a home‑equity loan to fund a kitchen remodel. If your business equity is increasing, you could attract investors or consider selling a portion of your stake for cash.
Shared ownership schemes use equity in a hybrid way. You might buy 40% of a home and rent the rest. Your monthly rent goes toward eventually buying more shares. The key is to track how each payment changes your equity percentage.
Employee Stock Ownership Plans (ESOPs) are another common equity tool. Employees receive shares as part of their compensation, aligning their interests with the company’s success. However, ESOPs can be risky if the company’s value drops, so it’s wise to diversify your investments.
When you sell an asset, the equity you’ve built becomes profit after taxes and fees. For example, selling a house with £130k equity after paying a 5% agent fee (£12,500) still leaves you with over £117k. In a company sale, your equity stake determines how much of the purchase price you receive.
One practical tip: keep an eye on the debt side of the equation. Paying down a mortgage faster boosts equity faster than waiting for market appreciation alone. Similarly, in a business, buying back shares can increase the percentage ownership of remaining shareholders.
Finally, remember that equity isn’t just a number—it’s a lever. Use it to negotiate better loan terms, secure a lower interest rate, or get a larger share of profits. Understanding how equity works gives you more control over your financial future, whether you’re buying a home, investing in a startup, or planning retirement.