What is negative equity?

Negative equity happens when the amount you owe on your mortgage is higher than the value of your home.

For example:

Ian and Jane buy a 3-bedroom house for £200,000. They put down a 5% deposit, or £10,000, up front. The mortgage they take out is therefore a 95% loan to value (LTV) of £190,000

- Within 2 years of buying the house, house prices drop by 20%

- Their home is now worth £160,000, or £40,000 less than when they bought it.

- They have paid off £10,000 of the mortgage since they bought it 

- This means their outstanding mortgage is £180,000

This home is now worth £20,000 less than their mortgage, so they are now in negative equity.

Negative equity doesn’t automatically mean you’re in permanent trouble. But it does limit options, especially if you need to move, remortgage or sell.

If you’re thinking about selling a house in negative equity, it’s important to understand the scale of the shortfall and the realistic routes for dealing with it.

Am I at risk of negative equity?

You’re more likely to face negative equity if you bought with a small deposit and took a high loan-to-value (LTV) mortgage.

A modest fall in local house prices can push a high-LTV loan into negative territory. Similarly, recent local market weakness or properties that need significant repair are more at risk.

If you’ve been paying down capital, making mortgage overpayments, or if local prices have risen, you’re less likely to be affected.

How to make sure you build equity in your home and avoid negative equity

As you pay off more of your mortgage, you will find you owe less to the mortgage lender and are more likely to have expanded the amount of equity – which is the amount you own – in your home.

Taking out a repayment, rather than interest-only mortgage means you will be paying more of your mortgage and building more equity in your home. 

How to check whether you have negative equity on a house

The first thing you need to check is the value of your home.

How to check the value of your home

You can do this using an online estate agent that offers a free valuation service like Yopa or Purple Bricks.

Another option is to ask a local estate agent for a valuation, or you can use a property comparison website such as Zoopla or Rightmove to find out how much similar properties in your area are selling for.

Remember that any valuation you get will only be a guide to the value of your home.

Find out how much your outstanding mortgage balance is

Check your outstanding balance by looking at your most recent mortgage statement or contacting your lender to ask them for a balance update.

You can check the current value of your home and compare it to the amount outstanding on your mortgage. 

If your mortgage balance is more than your home's value, you are in negative equity.

Do I need to worry about being in negative equity?

How you should deal with negative equity will depend on your finances and current circumstances.

If you have just bought your house and you are a first-time buyer with no problems making your mortgage repayments, then you may not need to worry about negative equity.

What if I am in negative equity and need to sell my home?

If you must sell while in negative equity, plan for the shortfall between sale proceeds and the mortgage balance.

Common approaches include:

• Cover the shortfall from savings or other assets so you can repay your lender in full at completion.

• Ask your lender if they will agree to a sale and a shortfall arrangement; some lenders may accept a voluntary sale and negotiate the remaining balance.

• Explore whether a bridging loan or unsecured personal loan can temporarily cover the gap, these are typically more expensive and sometimes risky.

• Consider renting out the property rather than selling, if your lender permits letting; this can give your property time to recover value. You’ll usually need lender permission to let.

Each route has pros and cons and tax/legal implications. Talk to your lender and a solicitor early, selling in negative equity often requires lender involvement and clear agreements.

What if I am in negative equity and my mortgage deal is coming to an end?

Getting a conventional remortgage while in negative equity is harder. Options that exist include guarantor mortgages, specialist lenders, or deals that accept higher risk - these tend to come with higher rates and stricter criteria.

Some lenders will allow you to “roll” a shortfall into a new borrowing, but this is uncommon and generally only offered by specialist providers with clear affordability checks.

Be cautious about securing additional debt against the property (second-charge loans or bridging loans): while they can solve short-term problems, they increase the total secured debt and the risk to your home if payments aren’t kept up.