When you buy a second home using equity, your lender lets you borrow against the value already sitting in your current property and use that borrowed money as the deposit and buying costs on the next place. Most lenders will go to 80 percent of your home's value before mortgage insurance kicks in, so your usable equity is 80 percent of the valuation minus what you still owe, and that number, not your total equity, is what actually funds the purchase.
That is the whole idea. Everything after this is arithmetic, structure and one big decision: do you keep the first home or sell it.
This guide is written for Hills District owners trading up. You bought in Baulkham Hills or Castle Hill years ago, the house has done its job, and the next place is bigger and closer to the schools you actually want. You have equity. What you do not have is a clear picture of how much of it the bank will let you touch. Last updated August 2026, with the RBA cash rate held at 4.35 percent on 11 August 2026, its second consecutive hold.
Total equity and usable equity are not the same number
Total equity is simple. It is what your home is worth minus what you owe. If your Baulkham Hills house values at $1,850,000 and your loan balance is $520,000, your total equity is $1,330,000.
You cannot borrow $1,330,000. No lender will hand over the full value of a property, because that would leave them with no margin if prices move. Instead they hold back a buffer, usually 20 percent of the valuation. What is left is your usable equity.
Two other things move the number before you even start. The first is that the lender uses their valuation, not the price your neighbour got at auction in March. The second is that a valuation ordered in a softening market usually comes in at or below what you expect. Cotality's Home Value Index, released on 3 August 2026, put Sydney's median house value at $1,529,308 after a 1.7 percent fall in July alone. Order the valuation early so you are working with a real number.
Working out your usable equity, every step shown
We will use one household all the way through. The property values are assumptions for the worked example, not published medians, so swap in your own numbers.
The situation. A couple own a four bedroom house in Baulkham Hills. The lender's valuation comes back at $1,850,000. Their home loan balance is $520,000. They want a five bedroom house in Kellyville at $2,200,000.
Step 1. Take 80 percent of the valuation.
$1,850,000 x 0.80 = $1,480,000
Step 2. Subtract the loan balance.
$1,480,000 minus $520,000 = $960,000 usable equity
Step 3. Check it against total equity.
$1,850,000 minus $520,000 = $1,330,000 total equity
Step 4. Confirm the gap is the lender's buffer.
$1,330,000 minus $960,000 = $370,000, and $1,850,000 x 0.20 = $370,000. The two match, so the maths is right.
So the couple have $1,330,000 of equity on paper and $960,000 they can actually use. That $370,000 difference is not lost. It is still their wealth. It just cannot be borrowed against at 80 percent LVR.
There is a rule of thumb that says usable equity times five gives you your maximum purchase price, because a 20 percent deposit is one fifth of the price. On these numbers that is $4,800,000, which is nonsense for this household. Equity tells you whether you have a deposit. Income tells you what you can actually buy. For almost every upsizer we work with, serviceability is the binding constraint, not equity. Run your income through our borrowing power calculator before you fall in love with a price bracket.
What the next purchase actually costs
A deposit is not the only cash you need at settlement. Here is the full requirement on a $2,200,000 Kellyville purchase using the NSW transfer duty rates for the 2026/27 financial year published by Revenue NSW.
Transfer duty on anything over $1,290,000 is $52,237 plus $5.50 for every $100 above $1,290,000. So:
$52,237 + (($2,200,000 minus $1,290,000) x 0.055) = $52,237 + $50,050 = $102,287
| Item | Amount |
|---|---|
| Deposit at 20 percent of $2,200,000 | $440,000 |
| NSW transfer duty, 2026/27 rates | $102,287 |
| Land registry fees, transfer plus new mortgage, at $182.73 each | $365 |
| PEXA electronic settlement fee on the transfer | $146 |
| Conveyancing on the purchase | $2,200 |
| Building and pest inspection | $600 |
| Lender application and settlement fees | $600 |
| Removalists | $2,500 |
| Total cash needed at settlement | $548,698 |
The land registry and PEXA figures are the fees that took effect on 1 July 2026. The conveyancing, inspection, lender and removalist lines are typical Sydney estimates and will vary. Duty is the only line you cannot negotiate, and you can check your own price point with the NSW stamp duty calculator.
Now compare the requirement with the resource:
$960,000 usable equity minus $548,698 needed = $411,302 of usable equity left over
The deposit is covered with room to spare. That is the good news. The rest of this article is about what that actually commits you to.
Two ways to turn equity into a deposit
There are only two mechanisms, and they lead to very different places.
Release it as a loan. Your lender increases the loan secured against Baulkham Hills, or writes a second split against it, and the funds come to you as cash. You keep both properties. This is the structure our home equity service is built around, and it is the same mechanism investors use when they release equity to buy an investment property.
Realise it by selling. You sell Baulkham Hills, the sale proceeds pay out the existing loan, and what is left lands in your account as cash for the next purchase. No new debt against the old property, because there is no old property.
If you release it as a loan and keep both, the structure on our example household looks like this:
- Top up the Baulkham Hills loan by $548,700. New balance $520,000 + $548,700 = $1,068,700
- Baulkham Hills LVR: $1,068,700 divided by $1,850,000 = 57.8 percent
- New Kellyville loan: $2,200,000 minus the $440,000 deposit = $1,760,000
- Kellyville LVR: $1,760,000 divided by $2,200,000 = 80.0 percent
- Total debt: $1,068,700 + $1,760,000 = $2,828,700
- Total property value: $1,850,000 + $2,200,000 = $4,050,000
- Combined LVR: $2,828,700 divided by $4,050,000 = 69.8 percent
Every LVR is inside standard lending criteria. On paper it works. Now look at what it costs each month.
Keep it or sell it
This is the decision that actually matters, and most people make it emotionally. Here are both versions of the same move, side by side.
If you sell Baulkham Hills. Selling costs on a $1,850,000 sale, using the Sydney agent commission range of 1.8 to 2.5 percent with 2.1 percent as the working average:
- Agent commission at 2.1 percent: $38,850
- Marketing campaign: $6,000
- Conveyancing on the sale: $1,500
- Mortgage discharge, land registry $182.73 plus PEXA plus lender admin: about $560
- Styling and pre sale repairs: $8,000
- Total selling costs: $54,910
Net proceeds are $1,850,000 minus $54,910 = $1,795,090. Pay out the $520,000 loan and you walk away with $1,275,090 in cash.
The Kellyville purchase costs $2,200,000 plus $108,698 of buying costs (everything in the table above except the deposit line) = $2,308,698. So the new loan is $2,308,698 minus $1,275,090 = $1,033,608, an LVR of 47 percent. Our property selling costs calculator will run your own sale numbers.
| Keep Baulkham Hills and rent it | Sell Baulkham Hills | |
|---|---|---|
| Total debt | $2,828,700 | $1,033,608 |
| Property owned | $4,050,000 | $2,200,000 |
| Monthly repayment | $17,879 | $6,533 |
| Gross rent received | about $4,471 | nil |
| Net monthly outlay | about $14,528 | $6,533 |
| Cash left over | $411,302 of unused equity | $241,482 of unused equity |
| Biggest risk | Two properties, one income, in a falling market | Sold at the bottom and cannot buy back in |
The repayment figures assume 6.5 percent, principal and interest, over 30 years. That rate is an illustration only. We are not quoting a lender rate here, because pricing in August 2026 varies by lender, LVR and loan size. Gross rent uses Cotality's 2.9 percent Sydney house yield as at 3 August 2026, and the net figure assumes about a quarter of the rent disappears into management fees, council rates, insurance, strata where relevant and maintenance.
The gap is roughly $8,000 a month, or close to $96,000 a year, to hold both. That is the real question. Not "can I get approved", but "can I carry $96,000 a year of extra outlay while the older house sits vacant between tenants and the roof needs doing".
If holding both appeals but the cash flow does not, read our guide to buying your next home and renting out the first, which goes deeper on rental serviceability.
Where the plan usually falls over
Serviceability, not equity. Lenders assess your repayments at roughly 3 percentage points above the actual rate, in line with APRA's guidance. On $2,828,700 of debt that buffer is brutal. Plenty of upsizers have the equity and fail the income test.
The valuation. Sydney house values fell 1.7 percent in July 2026, 4.6 percent over the quarter and 5.3 percent from the January 2026 peak. A valuation $100,000 under expectation cuts your usable equity by $80,000, because you lose 80 percent of the shortfall.
Slipping past 80 percent. Cross the 80 percent line on either property and lenders' mortgage insurance applies, which on a loan this size is tens of thousands of dollars. Our guide on how to avoid LMI in Sydney covers the workarounds.
Cross collateralisation. If the lender takes both properties as security for one big loan, you lose control. Selling one later means renegotiating the whole facility, and the bank can direct where the proceeds go. Ask for standalone loans with separate security. It is a five minute conversation at application and a nightmare to unwind later.
Timing. Releasing equity is a full credit application. Allow four to six weeks from documents to funds available, longer if a valuation is disputed.
The tax and cost items people forget
Land tax. If you keep the old home as an investment, NSW land tax applies once the land value of your taxable holdings passes the general threshold of $1,075,000, at $100 plus 1.6 percent of the excess. Land value, not property value, so the house does not count. It still catches Hills District owners on large blocks.
Capital gains tax. Your main residence is normally CGT exempt. Move out and rent it, and the ATO's six year rule lets you keep treating it as your main residence for up to six years. The catch is that you can only have one main residence at a time, so electing the old home usually means exposing the new one for that period. This is an accountant's call, not a broker's.
Interest deductibility. Interest on equity released to buy your own home to live in is not deductible. Interest on equity released to buy an investment usually is. The purpose of the borrowing decides it, not which property secures it.
What to do first
- Get two or three agent appraisals on your current home. Free, and they anchor everything else.
- Ask a broker to order an upfront valuation with a lender who is likely to fund the deal.
- Run your income through serviceability at the buffered rate before you look at listings.
- Decide keep or sell before you write an offer, because the loan structure is different for each.
- If you want to buy before you sell, read our bridging loans guide for Sydney upgraders, then our guide to buying and selling at the same time for the three ways to sequence it.
- Budget the full round trip. Our breakdown of the real cost of upsizing in Sydney itemises every fee from sale to settlement.
If you want someone to run these numbers on your actual property, book a free strategy call or get in touch. We are based in Norwest and do this every week for Kellyville and Hills District families, and our home loan options page covers the products behind each structure.
Ready to map out your next move?
The equity calculation takes ten minutes. Working out whether the structure behind it holds up over the next five years takes longer, and that is the part worth getting right.
We will value the position properly, test serviceability at the buffered rate, model keep against sell on your actual income, and tell you which lenders will say yes to the structure you want. No cost, no obligation.
Call 1300 11 7976 or book a free strategy call. We compare 50+ lenders and we do this for Hills District families every week.
Quick answers
Frequently asked questions
Your lender values your current home, takes 80 percent of that valuation, subtracts your existing loan balance, and the result is the usable equity you can borrow against. Those funds become the deposit and buying costs on the second property. You end up with either two loans and two properties, or one loan and one property if you sell the first. The 20 percent the lender holds back is not available to you at standard pricing, and it exists so the bank has a margin if values fall.
Enough to cover a 20 percent deposit plus buying costs on the new place, or you will pay lenders' mortgage insurance. On a $2,200,000 Sydney purchase that is $440,000 of deposit and roughly $109,000 of costs, so about $549,000 of usable equity. Working backwards, a home worth $1,850,000 with a loan under about $931,000 would clear that bar. Equity is only half the test though. Your income still has to service the combined debt at the buffered assessment rate.
Yes, and it is the most common structure for upsizers. The lender writes a top up or a separate split against your existing property and releases the funds as cash. You then use that cash as the deposit on the new home, which gets its own loan. You are carrying two mortgages from settlement day. Whether that is sensible comes down to serviceability and how confident you are about renting the old place out.
As a rule, up to 80 percent of the lender's valuation minus your current loan balance without paying mortgage insurance. Some lenders will go to 90 percent with LMI, and a small number higher again for specific occupations. Policy varies by lender and changes, so treat 80 percent as your planning number and let a broker tell you where the exceptions are. Serviceability, not the LVR cap, is what stops most applications.
Yes. There is no concession for buying a second or subsequent property in NSW, and no first home buyer exemption applies. Duty is calculated on the dutiable value, which is the higher of the purchase price or market value. For the 2026/27 year, anything over $1,290,000 is charged at $52,237 plus $5.50 for every $100 above that. Residential purchases above $3,870,000 also attract premium duty at $7.00 per $100 over the threshold.
It depends entirely on cash flow, not on whether the property is a good one. On our worked example, keeping both meant about $14,528 a month of net outlay against $6,533 if you sell, a gap near $96,000 a year. If your income absorbs that comfortably and you can carry a vacancy, keeping it builds a two property position. If it is tight, selling gives you a 47 percent LVR on the new home and a lot less to worry about when rates move.
Only if the release pushes either property past 80 percent LVR. In the worked example the old property lands at 57.8 percent and the new one at 80.0 percent, so no LMI. Push the new loan to 85 or 90 percent and the premium runs into the tens of thousands on a purchase this size, and it is not refundable if you sell in two years. Structure the deal to stay under 80 percent if you possibly can.
It is when one lender holds both properties as security for the same loan or facility. Banks like it because it reduces their risk. It is bad for you because selling one property later means the bank controls where the proceeds go and you have to renegotiate the whole arrangement. Ask for standalone loans with a single security each. Say it at application. Untangling it afterwards costs valuations, applications and sometimes a full refinance.
Treat it as a full loan application. Four to six weeks from submitting documents to funds being available is realistic, and longer if the valuation comes back low and you need to challenge it or change lenders. Start it before you go to auction, not after. An upfront valuation ordered early is the single best way to stop a deal falling over at the last minute.
Directly. Usable equity is 80 percent of the current valuation, so every dollar the valuation drops takes 80 cents off what you can borrow. With Sydney house values down 4.6 percent over the June quarter and 5.3 percent from the January 2026 peak, a $1,850,000 home valued twelve months ago may not value the same today. The flip side is that the home you are buying has fallen too, and if it is more expensive than yours, the gap between them has narrowed in dollar terms.
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