Negative equity: what it means and your options

Negative equity means owning a home that is worth less than the mortgage secured on it¹. If your house would sell for less than the amount you still owe the lender, the difference between the two is your negative equity: the debt left over that no sale of the property would cover. The term is commonly used to describe exactly this situation, owning a home worth less than your mortgage².

For most homeowners, negative equity is a problem only at certain moments. While you keep up your payments and stay put, nothing happens: the lender does not act on it, and it does not necessarily damage your credit record³. It bites when you want to do something that depends on the property's value, such as remortgaging at the end of a fixed rate, selling, or moving home, because in each case the property has to be worth enough to stand as security for the debt³.

What negative equity means for a homeowner

A home is in negative equity when it is worth less than what you owe on it¹. Say you borrowed £180,000 against a home you bought for £200,000 with a £20,000 deposit. If prices fell 25%, your home would now be worth £150,000, even though you still owe the bank £155,000. In this situation, you would be in negative equity by £5,000³. The £5,000 is the gap that no sale of the property could close.

What that gap means in practice depends on what you try to do. If you stay in the home and keep paying, the gap tends to close over time as you pay down the loan, and it may close faster if prices recover. If you sell, the gap follows you: if you are in negative equity, you still owe money to your mortgage lender after you sell⁶. The debt does not disappear with the property, and the lender can take legal action to recover any amount left unpaid even after the property has been sold¹.

It is worth knowing roughly where you stand before you make plans. A valuation, or the opinion of local estate agents on what the home would realistically fetch, compared with the balance on your latest mortgage statement, tells you whether you are in negative equity and by how much. The size of the gap matters: a small shortfall may be coverable with savings or a modest personal loan, while a large one usually needs the lender's agreement on how it will be repaid.

Why it happens: falling house prices and small deposits

Negative equity arises when property prices have fallen since you bought your home, or when you have large mortgage arrears that mean your total debt adds up to more than the current value of your home¹. Those are the two routes in: the market moves against you, or the debt grows.

The size of your deposit when you bought determines how exposed you are to a fall. Buyers choosing low deposit deals, such as 2% or 5% deposit mortgages, are most at risk⁷, because the amount borrowed is very close to the property value and there is very little cushion between the loan and the home⁴. In the Which? example above, a £20,000 deposit on a £200,000 home was wiped out by a 25% price fall, leaving the borrower £5,000 underwater³. A buyer who had put down a larger deposit would have had more equity to start with, which can help cushion any possible fall in house prices later⁸. The risk is also greater during a recession, when house prices can fall more rapidly⁶.

House prices do not fall evenly or everywhere at once. Zoopla's June 2026 index reported annual UK house price growth of 1.4%, with London and the South East in negative territory⁹, which shows how a national average can hide regional falls deep enough to push recent low-deposit buyers into negative equity.

Buying above the valuation creates the same position from day one. Under Scotland's Open Market Shared Equity scheme, the guidance is blunt: by paying above the valuation figure you are increasing your risk of negative equity, which is when your borrowings exceed the market value¹⁰. The same scheme's rules allow a buyer to offer more than the valuation, but the buyer must make up the difference in cash⁸, precisely so that the borrowing does not exceed the value.

Negative equity does not mean losing your home

Being in negative equity does not, by itself, put your home at risk. Lenders do not repossess because a property's value has fallen; repossession is a response to missed payments, not to the loan-to-value ratio. Negative equity affects what you can do with the property, not whether you can keep living in it, provided the mortgage is being paid.

The position is also not necessarily permanent. Two things shrink the gap: paying down the mortgage balance, and any recovery in the property's value. A borrower who keeps up payments over several years may find the shortfall has gone without doing anything about it deliberately.

For owners in shared equity schemes, the structure of the scheme changes the picture. Under Scotland's Open Market Shared Equity scheme, the value of your house is not affected by your share¹¹: the scheme holds a percentage stake in the property, so a fall in value reduces what your share is worth but does not create mortgage debt beyond the borrowing you took on. Scheme rules still matter, though. Under the Open Market Shared Equity scheme your home should be your sole residence and permission to let your home will not be given¹², so a household that needs to move and let the property out cannot do so under that scheme.

If money problems are the underlying cause, the sooner they are tackled the better. Free debt advice, from charities such as StepChange and National Debtline, can help before arrears build up, and lenders can sometimes agree temporary arrangements. The danger point is not negative equity itself but the missed payments that can follow financial pressure.

Remortgaging in negative equity: why lenders say no

A remortgage is a new loan secured on the property, and a lender will only lend against security it considers sufficient. In negative equity, the lender would be unlikely to approve a new deal, as your property would not be sufficient security³. That is the whole of the problem in one sentence: the thing the loan is secured on is worth less than the loan.

This matters most at the end of a fixed or discounted rate, when borrowers normally shop for a new deal. A borrower in negative equity may find they cannot switch to a new lender, and their options narrow to whatever their existing lender offers. Being in negative equity can make it extremely difficult to remortgage or move home in the future⁴.

Some lenders run schemes for their own existing borrowers. These usually allow a customer in negative equity to move the debt to a new property, borrowing up to 125% of the value of the new home, and are usually available only to borrowers with a good payment record⁵. These schemes are the lender's own concession, not a right, and each sets its own conditions.

Borrowers with a Help to Buy equity loan face an additional rule: if you are in negative equity, you cannot remortgage and borrow more money¹³. The equity loan is itself secured on the property, so the administrator will not permit further borrowing that increases the total debt beyond the property's value. Help to Buy Wales has its own framework: permission is needed to switch lenders, and further borrowing is only allowed for permitted purposes such as repaying the equity loan, structural alterations on medical grounds, or a transfer of equity¹⁴.

A transfer of ownership, such as buying out an ex-partner, also needs permission from the repayment mortgage lender, shown by a copy of the letter or email granting it¹⁵. In negative equity the lender may refuse, for the same reason it refuses a remortgage: the remaining borrower would owe more than the property is worth.

Selling or moving home: you need your lender's permission

If the money from a sale is not likely to pay off your mortgage, you normally need your lender's permission to sell your home¹. The same rule is stated across the UK by advice services: you need permission from your lender if your house is worth less than the amount left to pay¹⁶, and in England, if you are in this situation, you will need to get your mortgage lender's permission to sell the property¹⁷. In Northern Ireland the advice is the same: you need your mortgage provider's agreement to sell your home if it is in negative equity¹⁸.

The reason is legal, not administrative. The mortgage is a charge over the property, and the lender's consent is needed for a sale that will not discharge the charge. If you have used your home as collateral for any other secured loans, you may also need permission from the lender who provided them¹.

Two consequences catch sellers out. First, the shortfall survives the sale: you will still have to repay the full amount outstanding on your mortgage, and your lender can take legal action against you to get back any unpaid debts even after the property is sold¹. Second, permission is not guaranteed; the lender will want to see how the shortfall will be repaid. Your mortgage lender may allow you to repay the debt over time using a payment plan³, which is often the practical route to getting consent.

Where repossession is already a risk, selling voluntarily can be the better outcome, and a court can be asked for time to sell if the sale will repay the mortgage debt, or you have other money to pay off the mortgage if you are in negative equity¹⁹. If the lender sells the home itself, the same rule applies: you need your lender's permission to sell if the sale price is less than what you need to pay off the mortgage²⁰, and any shortfall remains your debt.

Shared ownership and shared equity schemes add their own steps. You can sell your home, or your share in it, at any time, but you have to tell the housing association in writing that you want to move²¹. Under Help to Buy Wales, provided you have complied with all of your equity mortgage obligations, a reduced payment may be accepted to allow a sale in negative equity; if the terms have not been complied with, a reduced payment may not be accepted and all money owed may be recovered²².

Your options: keep paying, overpay or let the property

For a homeowner who can afford the payments and does not need to move, the default option is simply to continue. Nothing forces a sale, and the gap closes as the balance is paid down. Overpaying, where the mortgage terms allow it, speeds that up, but check first whether a charge applies: an early repayment charge is defined by the FCA as a charge levied by the mortgage lender on the customer where the loan is repaid in full or in part before a date or event specified in the contract²⁴. Whether overpaying triggers one depends on the individual deal, and the details are in the mortgage offer.

If you are moving your mortgage, the same warning applies: with a negative equity mortgage you might face early repayment charges on your old mortgage³. The charge can be large in cash terms: a 5% early repayment charge on a £200,000 mortgage works out at a £10,000 penalty charge⁴.

Letting the property out is sometimes considered by owners who need to move but cannot sell. Renting your home should only be considered after obtaining the permission of your mortgage provider¹⁸. Consent to let is the lender's decision, and letting without it breaches the mortgage terms. Scheme homeowners have less room: under the Open Market Shared Equity scheme, permission to let will not be given¹².

Other options depend on circumstance. Selling and moving to a cheaper property, using existing savings and investments, making sure you are claiming all available benefits, and home improvement grants are all alternatives worth exploring before any decision²⁵. Where the shortfall has already become a debt problem, a negotiated settlement may be possible: a Tomlin order sets out agreed terms between a borrower and lender, though lenders do not have to agree²⁷. In the most serious cases, insolvency may be considered, and a recent official review recommended that a minimum figure should be put in place below which equity in the primary residence would be disregarded in insolvency, uprated annually in line with inflation²⁸, which would affect how much home equity creditors can reach.

Credit score: when negative equity affects it

Negative equity will not necessarily impact your credit score, unless you default on your payments or need to move house and cannot make up the shortfall³. The credit file records payments and debts, not property values, so a home worth less than its mortgage is invisible to credit reference agencies until something goes wrong with the payments.

What follows from a damaged credit record is expensive. Having a bad credit rating will make it more expensive and harder to borrow money²⁹. That matters for a homeowner in negative equity who later needs to borrow to cover a shortfall, or to borrow for anything else, because the two problems compound each other.

The route back is through the payment record. Lenders' negative equity schemes for existing borrowers are usually only available to those with a good payment record², so keeping the mortgage current preserves not just the credit score but access to the few options that exist. If payments cannot be maintained, free debt advice early is far better than arrears later.

Avoiding negative equity when you buy

The main protection is the deposit. The larger the cushion between what you borrow and what you pay, the further prices have to fall before the loan exceeds the value. Buyers choosing low deposit deals, such as 2% or 5% deposit mortgages, are most at risk⁷, so the deposit decision is also a negative equity decision. The guides to how much deposit you need and the costs of buying a house set out the trade-offs.

The second protection is the price you pay relative to the property's value. By paying above the valuation figure you are increasing your risk of negative equity¹⁰. In Scotland, where offers over the valuation are common, the First Home Fund rules allowed a buyer to offer more than the valuation but required the buyer to make up the difference in cash⁸, which kept the borrowing at or below the value. If a lender's valuation comes in below the price you agreed, that is a warning sign worth taking seriously rather than working around.

Scheme buyers should also understand what their scheme does in a falling market. A valuation for a Help to Buy equity loan may be rejected if it does not follow the criteria, or is too high or low compared with similar properties³⁰, so the scheme's view of the value is controlled. Help to Buy borrowers must also keep paying the management fee, and monthly interest if due, until the equity loan is repaid in full³¹, which is a cost that continues regardless of the property's value. Structural alterations made without permission carry their own penalty: any increase in the home's market value will be added to your equity loan, so you will owe more³².

Equity release and the no negative equity guarantee

Equity release is a product mainly for older homeowners that borrows against the property's value without monthly repayments, unless you choose to make them⁴. It is not a solution to mortgage negative equity, but it has a rule that gives the term its clearest consumer protection, and it is worth understanding the difference.

Products from members of the Equity Release Council must meet certain standards. The product must have a no negative equity guarantee: when your property is sold, and agents' and solicitors' fees have been paid, even if the amount left is not enough to repay the outstanding loan, neither you nor your estate will be liable to pay any more³³. The Equity Release Council's standards state the rule as a condition of membership: the product must have a NNEG so that, provided the secured property is sold for the best price reasonably obtainable and lending criteria have been met, the borrower or estate will never owe more than the property is worth, after deduction of reasonable sales costs³⁵. In plain terms, with these products you will never owe more than the value of your home³⁶.

That guarantee is specific to equity release. A residential mortgage has no equivalent: the shortfall after a sale is a real debt the lender can pursue¹. The guarantee also does not make equity release cheap or reversible. The amount borrowed, plus any rolled-up interest, can never go above the value of the property when sold at the end of the plan³⁸, but interest compounds, borrowing will often reduce the size of your estate and the amount you can leave behind for loved ones³⁹, and repaying the loan early often triggers an early repayment charge⁴⁰. Early repayment charges should be checked when choosing a plan²⁶. Family members who wish to keep the property after a death would have to discuss with the provider whether they can pay off the remaining debt⁴¹.

Equity release is not the only way to raise money from a home, and the alternatives are worth exploring first: selling and moving to a cheaper property, borrowing from family or friends, using savings or investments, claiming all available welfare benefits, and home improvement grants²⁶. With equity release you do not need to meet a lender's affordability or income criteria, as you do with a remortgage⁴, which is why it is sometimes used by retired homeowners, but that ease is balanced by the cost and the reduced inheritance. If you already have an equity release plan, it may be possible to switch to a cheaper deal, though charges may apply⁴².

Where to get free help

Free, independent advice is available across the UK, and it is worth taking before any decision to sell, hand back keys, or borrow against the home:

• England: Shelter England covers selling to avoid repossession and what happens when a lender sells your home¹⁹, and Citizens Advice covers problems with buying and selling¹⁷.
• Scotland: Shelter Scotland and mygov.scot publish guidance on shared ownership and scheme rules²¹.
• Wales: Shelter Cymru covers selling voluntarily and the rules on lender permission¹, and the Help to Stay Wales scheme can provide an equity loan to struggling homeowners, though it needs written consent from your existing mortgage lender before the loan can be put in place⁴³.
• Northern Ireland: Housing Rights covers sorting out mortgage problems⁴⁴, and Advice NI covers housing-related debts including negative equity¹⁸.
• UK-wide debt help: StepChange, National Debtline and Business Debtline provide free debt advice, including on homeowners' debt solutions²³, and Independent Age offers help for older homeowners with mortgage problems¹⁶.

For scheme homeowners, the scheme administrator is the first port of call for permission questions: the Help to Buy customer service team handles equity loan repayment applications, which need a form including conveyancer details, the percentage you will repay and how you will fund it⁴⁵.