Leverage (Gearing)
Using borrowed money to control a larger asset than your cash alone could buy. Leverage multiplies returns on the way up and losses on the way down.
Leverage is the engine of most property wealth and most property failures. Putting £50,000 into a £200,000 property with a 75% mortgage means £150,000 of someone else's money working alongside yours.
The multiplication effect
If that £200,000 property rises 10% in value, the £20,000 gain lands entirely on your £50,000 stake: a 40% return before costs. Unleveraged, the same £50,000 in a £50,000 asset would gain £5,000. The same arithmetic runs in reverse: a 10% fall wipes out 40% of your equity.
Leverage also transforms income returns. Rent has to cover mortgage interest before anything reaches you, which is why interest rates dominate leveraged cashflow and why the break-even rate matters.
Judging the right level
Higher LTV means more properties per pound of capital, thinner cashflow margins, and less room for error at remortgage time. Lower LTV means slower portfolio growth and stronger resilience. There is no universally right answer, but there is a right question: does the deal still stand at stressed interest rates, realistic voids, and a soft valuation? Cash-on-cash return measures what leverage is doing for you; stress testing measures what it could do to you.