Understanding leverage: a beginner’s guide

Leverage is borrowing money to invest, such as using a mortgage to buy property. It allows you to purchase an asset with a smaller deposit, controlling a much larger investment.

This strategy significantly magnifies financial outcomes:

- Gains: A small rise in property value can create a large return on your deposit.

- Losses: A price drop can cause a substantial loss on your initial investment.

Because of this volatility, property is a long-term investment. Gains or losses are only unrealised (on paper) until you sell.