Equity: how much you can use when values drop
Usable equity is 80% of your property's value, minus what you owe. Because your loan stays the same when values fall, equity falls faster than prices. On a $900,000 home with a $500,000 loan, the national 3.6% fall since March cuts usable equity from $220,000 to $194,080: a drop of about 12%.
For ten years, equity did the heavy lifting for Australian investors. Your home rose, the bank revalued it, and the difference became the deposit for the next one.
That works in reverse too, and since March it has been running in reverse.
Key facts, as at 9 September 2026
- Usable equity: 80% of value, less the loan
- National values: 3.6% below the March 2026 peak
- Sydney values: 7.1% below the February 2026 peak
- The bank uses its own valuation, not yours
- New borrowing is tested at your rate plus 3 points
Sources: Cotality Home Value Index, APRA
The formula
Lenders will generally lend up to 80% of a property's value without charging mortgage insurance. So:
Usable equity = value x 80%, minus the loan.
Take a home worth $900,000 with $500,000 owing.
- 80% of $900,000 is $720,000
- Less the $500,000 loan
- Usable equity: $220,000
Your total equity is $400,000. But the bank wants a 20% cushion left in the property, so only $220,000 of it is yours to borrow against.
What a fall does
Now apply this year's falls to that same home. The loan stays at $500,000.
| Usable equity | |
|---|---|
| At the peak | $220,000 |
| After a 3.6% fall (national) | $194,080 |
| After a 7.1% fall (Sydney) | $168,880 |
Source: Presm arithmetic on falls from peak reported by Cotality, 1 September 2026
| Value | 80% of value | Loan | Usable equity | |
|---|---|---|---|---|
| At the peak | $900,000 | $720,000 | $500,000 | $220,000 |
| After a 3.6% fall | $867,600 | $694,080 | $500,000 | $194,080 |
| After a 7.1% fall | $836,100 | $668,880 | $500,000 | $168,880 |
A 3.6% fall in value took away 12% of the usable equity. Sydney's 7.1% fall took away 23%.
That is the thing to remember. The value drops by a percentage. The loan does not drop at all. So everything lands on the equity.
The more you owe, the sharper it is. If the loan on that home were $650,000, usable equity would fall from $70,000 to $44,080 on the national figure. More than a third of it, gone on a 3.6% move.
Having equity is not the same as getting it
Three checks stand between the number and the money.
The bank's valuation. In a falling market, valuers are cautious. They look at recent sales, and recent sales are lower. Expect a figure under what you believe your home is worth.
The repayment test. Releasing equity means borrowing more. The bank must be satisfied you could repay everything, old and new, at your rate plus 3 points. After three rate rises this year, that test is close to 9.25%. You can have the equity and still fail here.
The six times income limit. Banks can write only a limited share of loans where total debt is six times income or more. Equity releases for a second or third property are exactly the loans that reach that line.
Going above 80%
You can often borrow to 90% of value. The catch is lenders mortgage insurance, charged on the whole loan, and it climbs steeply as you pass 80%, then 85%. Check the cost before you treat that extra 10% as available.
What we would do
Get the bank's number first. Ask your broker to order a valuation before you plan anything, and ask whether there is a charge. Until then, your equity is a guess.
Do not draw it all. Leaving some unused gives you room if values slip again, and they have slipped six months running.
Pay the loan down. In a falling market, the only part of the formula you control is the loan. Every dollar off it is a dollar of equity no valuer can take away.
Be careful using a falling asset to buy another one. Borrowing against your home to fund a deposit puts two properties on the same market. That is how the last decade's gains were built. It is also how losses double.
To see how far your own city has moved, read a fifth month of falling home values.
Frequently asked questions
How do I calculate usable equity?
Multiply your property's value by 80%, then subtract what you owe on it. A home worth $900,000 with a $500,000 loan has $220,000 of usable equity.
How much does a price fall reduce my equity?
More than the fall itself. On a $900,000 home with a $500,000 loan, a 3.6% fall in value cuts usable equity from $220,000 to $194,080, which is a 12% drop.
Can I use equity as a deposit for an investment property?
Yes, if the bank agrees. It will value your home itself, and you must pass its repayment test on your existing loan and the new one together, at your rate plus 3 points.
Can I borrow more than 80% of my home's value?
Often yes, but above 80% the lender usually charges lenders mortgage insurance, which can cost thousands.
Sources
- Cotality Home Value Index, falls from peak, 1 September 2026
- APRA, limit on high debt to income home loans
- Reserve Bank of Australia, cash rate target
The examples are our own arithmetic. Lenders differ in how much they will lend. This is general information, not credit advice.