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Using your equity as a deposit when you already own a home

  • Writer: Shane Passfield-Bagley
    Shane Passfield-Bagley
  • Dec 1
  • 5 min read

Equity 101: how it links to your deposit


If you already own a property, your deposit for the next place often does not come from cash in the bank. It usually comes from equity.


Equity is:


The difference between what your property is worth and what you owe on it.


For example:

  • Home value: $900,000

  • Mortgage: $500,000

  • Equity: $400,000


Put simply, equity is the full gap between your home’s value and the debt, while usable equity is the portion a bank is actually prepared to lend against once it applies its LVR limits. You might have $400,000 of equity on paper, but only part of that can be turned into a deposit.


Banks will only let you borrow up to a certain percentage of the value, depending on whether the property is owner occupied or an investment.


  • For owner occupied homes, the standard cap is 80% LVR

  • For residential investment properties, it is 70% LVR, which equates to a 30% deposit


The difference between that cap and your current loan is your usable equity.


Using the example above:

  • Maximum lending at 80%: $900,000 × 80% = $720,000

  • Current loan: $500,000

  • Usable equity: $220,000


That $220,000 can, in many cases, be used as part or all of the deposit for your next purchase.

 


Typical deposit expectations when you are moving home


For someone buying a home to live in, deposit expectations do not change just because you already own.


  • Banks still anchor off a 20% deposit for a standard owner occupied purchase

  • They are allowed to do some lending above 80% LVR, and from December 2025 this can be up to 25% of new owner occupier lending 


The difference is that your deposit may now be a mix of:

  • Equity release from your current property

  • Net sale proceeds, if you sell

  • Any additional cash savings or investments


If you keep your current home and turn it into a rental, most banks will now treat that property as a residential investment. This means:

  • Your new home is assessed under owner occupied rules (usually up to 80% lending)

  • Your old home is assessed under investment rules (usually up to 70% lending), which can reduce how much equity you can draw out of it and may change the interest rates and product options on that loan


DTI rules also apply, so your income must support the combined lending across both properties during any overlap.

 


Common real world scenarios


Sell first, then buy

This is often the simplest on paper.

  • You sell your current home

  • Use the net proceeds as your deposit for the next place

  • Your loan structure then reflects only the new property


Pros:

  • Very clean from a bank perspective

  • No period of “double debt”

  • Easier to stay within DTI and LVR limits


Cons:

  • You may need temporary accommodation between properties

  • There is a risk of being priced out if the market moves while you are between homes

  • You may need to break any current fixed terms in order to pay off the existing debt


Buy before you sell (bridging)

Here you buy your next home first, while still owning the existing one. For a period, the bank is exposed to two properties and two loans.


There are two broad flavours:

  • Open bridge: where sale is intended but not yet confirmed

  • Closed bridge: where you have an unconditional sale on your existing home, with a known settlement date


The bank will usually:

  • Secure lending over both properties

  • Test your ability to service the peak debt position within DTI and internal stress test rates

  • Expect the bridge to be short term and to clear on sale


This can work well if you have strong income and know your existing property will be saleable, but it does increase risk and complexity.


Keeping the existing home and buying again

This is where things become more “investor flavoured”.


Example:

  • You keep your current home as a rental

  • You buy a new home to live in

  • The deposit for the new home comes from the equity in your current one


From the Reserve Bank’s perspective:

  • The property you live in is owner-occupied

  • The retained property is generally treated as a residential investment if it generates rent


Investor lending is subject to stricter LVR settings:

  • Investor loans are usually limited to a 70% LVR threshold

  • It is uncommon for banks to allow borrowers to release equity past 70% in today’s market, but non-banks may have appetite for this


In practice, that means:

  • Your old home will often be limited to 70% lending, capping how much equity you can extract

  • Your new owner occupied home will usually be assessed at 80% LVR, subject to the bank’s tolerance for high LVR owner occupied lending


The combined picture has to fit within both LVR and DTI constraints.

 


How banks actually calculate usable equity


Most lenders follow a similar process.


For each property:

  1. Determine value

    • This might be a desktop estimate, e-valuation, or full registered valuation depending on the scenario

  2. Apply maximum LVR

    • 80% if owner occupied

    • 70% if residential investment, although there can be some exceptions and new build flexibility

  3. Subtract current debt

    • The difference is your theoretical usable equity

  4. Overlay DTI and affordability

    • Even if you have plenty of equity, income and DTI caps can limit how much the bank will actually lend


You can then combine usable equity from multiple properties as the deposit for a new purchase.


For example:

  • Own home: $900k value, $500k loan, 80% cap gives $220k usable

  • Rental: $800k value, $500k loan, 70% cap gives $60k usable

  • Total usable equity: $280k


If you use that as a 20% deposit, your price range is around $1.4m. If you use it as a 30% deposit on an investment, your range is lower.


 

Risks and trade-offs to think about


  1. More leverage across the whole portfolio

    • Using equity increases your overall debt, as the deposit itself is not “cash”

  2. Cross security

    • Some structures tie properties together under a single facility

    • This can increase the bank’s control if things go wrong, or you need to sell one of your properties

    • We highly suggest a “Split banking” strategy for this reason

  3. Market movements

    • A downturn can compress equity across several properties at once

    • Higher leverage makes you more sensitive to valuation changes

  4. Cash flow pressure

    • Even if equity looks strong, running costs, vacancies, and rate rises can bite

  5. Exit flexibility

    • The way loans are structured can affect how easily you can sell one property without major reshuffling

  6. Return on investment

    • While your current home may suit your needs, this doesn’t necessarily mean it is going to perform well as an investment property

These are not reasons to avoid using equity, but they are reasons to plan carefully instead of just maximising the next purchase price.

 


Practical next steps for movers and upgraders

  • Get a current valuation view on your existing properties

  • Run a usable equity calculation based on 80% and 70% caps

  • Map out different scenarios

    • Sell then buy

    • Buy then sell

    • Keep and convert to investment

  • Check how each scenario looks under DTI and servicing tests

  • Decide how much risk you are genuinely comfortable carrying, not just what is technically possible


From there, you can design a deposit and lending structure that supports your lifestyle plans rather than boxing you in.


Planning your next move?

If you already own a home and want to understand how much equity you can use, we can run the numbers and show you what your next purchase could look like before you list or make an offer.


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