For the past few years, equity has been the quiet windfall of owning a home in the Hunter. Values climbed, loans shrank, and the gap between the two gave people the means to renovate, clear expensive debt, help the kids with a deposit or buy an investment property.
That gap is now getting smaller. Cotality’s figures, reported by the Newcastle Herald, show Newcastle and Lake Macquarie home values fell for a fourth consecutive month in August, with the median house value down 0.8 per cent for the month to $1,059,758. At the same time, four rate rises this year have raised the bar for borrowing any extra money.
None of that means your equity has gone. It does mean the number you had in your head six months ago may no longer be the number a lender will work with. Here is how to work out what you really have, and what can stand between you and using it.
How Much Equity Do You Actually Have?
Most lenders will lend up to 80 per cent of your property’s value without charging lenders mortgage insurance. So the usual way to estimate usable equity is:
Usable equity = (property value × 80%) − what you owe
Because of that 80 per cent multiplier, every $1 your property loses in value takes about 80 cents off your usable equity. Here is what the recent falls look like on a typical local home, using Cotality’s median house values for Newcastle and Lake Macquarie:
| Loan | Change | Usable equity (June) | Usable equity (August) |
|---|---|---|---|
| $600,000 | −$19,560 | $267,366 | $247,806 |
| $700,000 | −$19,560 | $167,366 | $147,806 |
Based on the median house value of $1,084,207 in June and $1,059,758 in August. Illustrative only. Your property’s value is set by the lender’s valuation, not a median or an online estimate.
Notice that the dollar fall is the same whatever you owe. What changes is how much it matters. On the $700,000 loan, a $19,560 drop is more than 11 per cent of the usable equity.
The valuation is the lender’s, not yours
The figure that counts is the value the lender’s valuer puts on your home. Online estimates and agents’ appraisals are useful guides, but they are not what the lender uses. When a market is softening, it pays to be conservative. If your plans only work at the top of the estimated range, they may not work at all. Many lenders and brokers can get an indicative valuation before you apply, and it is worth doing that first.
Equity Isn’t the Only Test
This is the part that catches people out. Having equity doesn’t mean you can borrow it. Any extra borrowing has to pass the lender’s serviceability test: at your interest rate plus a 3 percentage point buffer, across all your debts.
| Borrow extra | You pay (6.29%) | Lender tests (9.29%) |
|---|---|---|
| $50,000 | $309 | $413 |
| $100,000 | $618 | $826 |
30-year principal and interest. Illustrative only. Lenders set their own assessment rates.
After four rises this year, some owners have plenty of equity but not enough assessed income to borrow against it. If that sounds familiar, we explain why in can you still refinance after four rate rises. Our borrowing power calculator applies the same 3 per cent buffer, so it’s a good first check.
Going past 80 per cent
You can borrow above 80 per cent of your home’s value with some lenders, but you will usually pay lenders mortgage insurance, and fewer lenders will do it. We explain how LMI works, and when it can be worth paying, in lenders mortgage insurance explained.
Ways to Get at Your Equity
- Redraw or offset. If you have paid ahead on your loan or built up an offset balance, that money is already yours. Using it usually needs no application and no new assessment, but check your loan’s redraw terms.
- Top-up with your current lender. Increasing your existing loan is often the simplest path. It still needs a valuation and a serviceability assessment.
- A separate split. Setting up the extra borrowing as its own loan split keeps it separate from your home loan, which makes it easier to track, and much easier for tax if the money is for investment.
- Refinancing with cash out. Moving to a new lender and borrowing more at the same time. This can suit you if the new lender offers a sharper rate, but you face the full application, valuation and serviceability test.
- Line of credit. A revolving facility secured against your home. Flexible, but easy to let the balance drift, and often priced higher than a standard loan.
Whichever route you take, expect the lender to ask what the money is for. Renovations, debt consolidation, investment and a gift to family are all assessed differently.
A Word on Tax
If you are borrowing against your home to invest, keep one principle in mind. The ATO’s position is that it is how you use the borrowed money, not what secures the loan, that decides whether the interest is tax deductible. Money borrowed against your home and used to buy an investment property or shares can be deductible. Money used for a renovation on your own home, a car or a holiday is not.
If a single loan is used for both, the interest has to be apportioned, and that gets messy. Keeping investment borrowing in its own split from day one is the simplest protection. Talk to your accountant before you draw the money, not at tax time.
A Note for Investors
Since February 2026, APRA has limited how much high debt-to-income lending banks can do. No more than 20 per cent of a bank’s new owner-occupied or investment loans can go to borrowers owing six times their income or more. If using your equity to buy an investment property would take your total debts past that level, you may find fewer banks with room to say yes. Investment is one of the reasons we most often see equity plans need a rethink. We cover the local numbers in Lake Macquarie investment yields.
A Sensible Order of Operations
- Estimate your value conservatively. Use recent local sales, not last year’s peak.
- Do the 80 per cent sum to see your realistic usable equity.
- Check serviceability with the borrowing power calculator, including the extra borrowing.
- Get an indicative valuation before any formal application.
- Choose the structure that fits the purpose, especially if any of it is for investment.
If you are thinking about renovating, our guide to using home equity for renovations goes into the practical detail. And if you are considering drawing on equity because repayments have become hard to meet, please read what to do if you are struggling with your mortgage first. Borrowing more is not always the right answer.
Frequently Asked Questions
Does a fall in property value reduce my usable equity?
Yes, and by more than people expect. Because lenders generally lend up to 80 per cent of the value without LMI, every $1 your home loses in value reduces your usable equity by about 80 cents. On the Newcastle and Lake Macquarie median house, the fall from June to August 2026 took roughly $19,560 off usable equity.
Can I still borrow against my equity if house prices are falling?
Usually, yes, as long as you still have equity at the lender’s valuation and you pass its serviceability test. The test is at your rate plus a 3 percentage point buffer, across all your debts. Falling prices reduce the equity available, and higher rates make the serviceability test harder, so it’s worth checking both before you commit to plans.
Is the interest on money borrowed against my home tax deductible?
It depends on how you use the money, not on what secures the loan. Interest on money borrowed against your home and used to buy an income-producing investment can be deductible. Interest on money used for private purposes, such as a renovation on your own home, is not. Keep investment borrowing in a separate loan split, and get advice from your accountant.
What is the difference between redraw and a loan top-up?
Redraw lets you take back extra repayments you have already made, so it’s your own money and usually needs no new application. A top-up increases your loan beyond what you originally borrowed, so it needs a valuation and a fresh serviceability assessment. Check your loan terms, as some lenders limit or charge for redraw.
Work Out Your Real Number
If you are planning around your equity, whether for a renovation, an investment or helping family, it’s worth getting a realistic figure before you commit to anything. That means a value the lender will actually use, and a clear answer on whether you can service the extra borrowing.
Want to work out what you can realistically access? Call David on 0417 676 191 or get in touch via our contact form.
This article is general information only and does not take into account your objectives, financial situation or needs. It is not tax advice. Figures are illustrative and current as at the date of publication. Please seek advice specific to your circumstances, including from a registered tax agent, before acting.
Sources
- Newcastle Herald, Newcastle and Lake Macquarie home values dip fourth month, reporting Cotality’s Home Value Index for August 2026.
- Newcastle Herald, Newcastle and Lake Macquarie: home values dip 0.4%, reporting Cotality’s Home Value Index for June 2026.
- Australian Taxation Office, Interest, dividend and other investment income deductions.
- Australian Taxation Office, Taxation Ruling TR 95/25 (deductibility of interest on money borrowed) and TR 2000/2 (line of credit facilities).
- APRA, APRA maintains current macroprudential policy settings, 28 May 2026.
- APRA, Activating debt-to-income limits as a macroprudential policy tool.
Ready to move forward?
Have questions about anything in this article? David from Rebus Finance can help with a free, no-obligation chat.