Negative Equity Explained

Negative equity is when your home is worth less than the mortgage secured against it. For example, if you owe £210,000 but the property would only sell for £190,000, you are £20,000 in negative equity. It becomes a practical problem mainly when you want to sell, move or remortgage — and for most people it corrects itself over time as they pay down the loan and prices recover.

In this insight we explain how negative equity happens, what it means for your options, and the steps that help you climb out of it.

---

Key Takeaways

• Negative equity only crystallises as a loss if you have to sell — otherwise it is a paper figure.
• It usually results from falling house prices, especially after buying with a small deposit.
• You can often stay put and overpay, or switch to your lender's product transfer, rather than remortgage to a new lender.
• Repossession makes negative equity worse because forced sales tend to achieve lower prices.

---

How negative equity happens

The most common cause is a fall in house prices after you buy, particularly if you bought with a small deposit and so a high loan-to-value. If prices drop 10% on a home you bought with a 5% deposit, you can quickly owe more than it is worth.

Other contributing factors include:

• Interest-only mortgages where the balance never reduces.
• Adding to the loan — for example, further borrowing or rolled-up fees.
• New-build premiums fading once the property is no longer brand new.

Your loan-to-value is central to all of this. Our guide on how loan-to-value impacts mortgage repayments explains why a high LTV leaves less of a cushion.

What it means for remortgaging

When your deal ends, remortgaging to a new lender normally needs some equity, because lenders cap the loan at a percentage of the property's value. In negative equity that is usually not possible.

The common route instead is a product transfer — a new rate with your existing lender, which typically does not require a fresh valuation or affordability check to the same degree. This lets you avoid slipping onto a higher standard variable rate. Our guide on whether you can remortgage if house prices drop covers this in detail.

What it means for selling or moving

Selling while in negative equity means the sale price would not clear the mortgage, leaving a shortfall you must cover from savings. That is why many people simply wait.

If you need to move, some lenders offer to port your mortgage or let you carry a shortfall across to a new property, but this is at their discretion and far from guaranteed. Our guide on what happens if you have a mortgage but want to move explains the options.

How to get out of negative equity

There is rarely a quick fix, but several things help:

• Keep paying (and overpay if you can). Every capital repayment shrinks the gap; check your lender's overpayment allowance first.
• Wait for prices to recover. Time is often the biggest factor.
• Add value to the home. Sensible improvements can lift the valuation.
• Avoid further borrowing against the property while you are underwater.
• Stay on a competitive rate via product transfers so more of each payment reduces the balance.

If you are struggling to pay

Negative equity is a valuation problem; missed payments are a different, more urgent issue. If you are worried about affordability, speak to your lender early — they can discuss options such as a temporary change to payments. Free, impartial help is available from services like MoneyHelper and Citizens Advice. Repossession is a last resort and usually deepens negative equity, because properties sold this way tend to fetch less.

Is negative equity a real loss?

Only if you sell. Until then it is a paper figure — if you can keep living in the home and paying the mortgage, it may never affect you.

Can I move house in negative equity?

Sometimes. A few lenders allow porting or carrying a shortfall to a new property, but approval is not guaranteed and depends on affordability.

How long does negative equity last?

It varies. It ends when your remaining balance falls below the property's value, through a mix of repayments, overpayments and any recovery in prices.

Should I hand the keys back?

No — voluntary repossession does not clear the debt and usually leaves you owing the shortfall. Talk to your lender and a free debt adviser first.