Negative equity

You are in negative equity if your property is worth less than what you owe to your mortgage lender or any other lenders who gave you a secured loan.

What is negative equity?

Equity is the difference between the value of your home and the amount you borrowed to buy it.

Negative equity can happen when property prices have fallen since you bought your home.

For example, if you got a £75,000 mortgage to buy a home worth £100,000, you have £25,000 in equity. If property prices fall and the value of your home drops to £50,000, you would probably have £25,000 in negative equity.

Negative equity can also be caused when your outstanding mortgage and your mortgage arrears are more than the current value of your home.

Having negative equity can make it difficult to sell your home or to get credit.

How you can get into negative equity

You are more at risk of negative equity if you have:

  • fallen behind on your mortgage payments
  • borrowed a large proportion of the property's value
  • increased the size of your mortgage when property values were high
  • taken out other loans using your home as collateral
  • a mortgage with high interest rates

Get advice immediately if you are worried that you could lose your home.

Selling your home

If you sell your home when you have negative equity, the money from the sale is unlikely to cover the cost of your mortgage. You could still have a large debt to your lender.

You must pay back everything you originally borrowed. Your mortgage lender or other creditors can take legal action against you to get back what you owe.

Selling a home with negative equity can affect your credit rating. You probably won't be able to get a new mortgage with a different lender or take out any other loans using your home as collateral.

If you can, it may be better to wait until property prices rise and your home increases in value.

You can sell your home in the normal way if you have enough savings or other assets to pay off the negative equity and the costs involved in selling.

Get advice before you make a decision. Use Shelter's directory to find a local adviser.

Claiming benefits

If you claim means-tested benefits, the money you get from the sale is counted as capital and your benefits will probably be reduced.

Get permission to sell from your lender

You usually need your lender's permission if you want to sell. You might also need permission from other creditors if you used your home as collateral for other loans.

It will be easier to get permission to sell if you have realistic plans to pay off everything you owe. For example, you may be willing to sell personal belongings or a car to clear your debts.

Ask your lender if they have a scheme that offers help to people stuck in negative equity.

Ask your lender if they can give you a bigger mortgage to allow you to move to a new property and pay off the negative equity. 

Having a larger mortgage would increase your debts and you might have to pay higher interest rates and arrangement fees.

Get independent financial advice before you decide what to do.

Use the FCA register to find a financial adviser

Get advice if your lender won't let you sell

Get independent advice if you can't get permission to sell.

An adviser may be able to help you to negotiate. It may be possible to:

  • argue that selling privately will allow you to pay off your debts more quickly
  • convince your lender to let you keep the same mortgage but transfer it to a new property

Use Shelter's directory to find a local adviser.

Mortgage arrears and repossession

Repossession doesn't happen automatically.

There's a risk that your lender may try to repossess your home if you fall behind with your mortgage payments. But your lender can't repossess your home just because you are in negative equity.

Your lender may let you stay in your home and not sell it if you can come to an agreement about how you can pay off the arrears.

Get advice immediately if you are threatened with repossession. It may be possible to negotiate with your lender.

Use Shelter's directory to find a local adviser.

 

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