What is negative equity?

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Negative Equity means that your home is worth less than the mortgage you have still to pay on the property. This can be due to falling house prices. 

What is equity?

Equity is how much of your property that you “own”. You can work it out by finding out the value of your property, then taking away the amount you still owe on your mortgage. What’s left the equity you have in your home.

How does negative equity work?

Negative equity is when you owe more on your mortgage than your home is worth. 

For example, if you:

  • Bought a house for £200,000
  • You have £170,000 left to pay on your mortgage
  • The value of the property then falls to £160,000, this would put you into negative equity of £10,000

What causes negative equity?

Negative equity can happen when house prices fall. It can also happen if a problem is found that impacts on resale value, such as subsidence. Changes in the local area can also affect how much your home is worth. 

Negative equity is more likely to affect people who have a low level of equity in their home.

Can you sell a home with negative equity?

It can be hard to sell a home when you’re in negative equity. The drop in value means that once the home is sold, you may not get enough to repay the mortgage balance to the lender. 

How you may be able to avoid negative equity

If you’re worried about negative equity, there might be ways you can avoid it.

Pay a bigger deposit

Starting off with more equity means that you’re less likely to drop into negative equity, even if house prices do fall. 

Avoid paying too much for your home

When house prices are rising rapidly, buyers can often be asked to bid up from the asking price. 

This can mean that you feel pressured to offer more than you want to or can truly afford. If you are asked to make an offer over the asking price, think about how this will impact on the amount of equity you hold.

What to do if you have negative equity

Stay put

If you don’t need to move, staying put and repaying your mortgage can help.

If house prices begin to rise again you may find that the problem fixes itself over time.

Overpay on your mortgage

Overpaying on your mortgage, might give you a chance to build equity faster. 

There may be limits to how much you can overpay (often up to 10% of your remaining balance). Check the terms of your mortgage carefully, as you might be subject to an early repayment charge if you pay off more than is allowed. 

Seek financial advice

Finding out you are in negative equity can be distressing. You may want to find financial help and support. Try impartial organisations such as MoneyHelper or Stepchange.
The content on this page is for reference and is not financial advice.
For impartial financial advice, try MoneyHelper.