Negative equity isn’t ideal, but it’s not the end of the road either. It simply means that your home’s market value is currently less than what you owe on your mortgage. While this can make selling a bit more complicated, it doesn’t mean you’re out of options.
In many cases, negative equity is temporary, and there are ways to manage it if you’re considering moving. Whether you’re exploring options with negative equity mortgage lenders, considering a negative equity home loan, or just wanting to understand what it means for your plans, having the right information can help you make the best decision.
What is negative equity?
Negative equity arises when the amount you owe on your mortgage exceeds your property’s current market value. For instance, if you purchased a home for £250,000 with a 10% deposit, your mortgage would be £225,000. If the property’s value decreases to £200,000, you would be in negative equity by £25,000.
Related: Is equity release right for me?
How to determine if you’re in negative equity
To assess whether you’re in negative equity:
- Check your mortgage balance: Review your latest mortgage statement or contact your lender to find out the remaining amount owed.
- Get a valuation of your property’s current value: Book a valuation from a local estate agent or hire a professional surveyor. Online valuation tools can also provide estimates.
- Compare the figures: If your mortgage balance exceeds your property’s current market value, you’re in negative equity.
Need advice? Speak to a mortgage advisor
Implications of negative equity
Being in negative equity can impact your financial decisions, particularly if you want to sell or remortgage. Lenders may hesitate to approve new mortgage deals or allow property sales that don’t cover the outstanding mortgage balance.
Selling a property in negative equity
Selling a home while in negative equity can be more complex than a standard sale, as the proceeds from the sale may not be enough to cover your remaining mortgage balance. However, depending on your circumstances, there are still ways to move forward. The key is to understand your options, communicate with your mortgage lender, and plan strategically to minimise financial strain.
Here are some considerations to explore:
Consult your mortgage lender
Before proceeding, discuss your situation with your lender. Some lenders may permit the sale and allow you to repay the remaining debt over time. However, this is subject to their policies and your financial circumstances.
Cover the shortfall
If you have savings or access to additional funds, you can pay the difference between the sale price and the mortgage balance to clear the debt upon sale.
Rent out the property
With your lender’s permission, consider renting out your home. This approach can generate income to cover mortgage payments until property values potentially rise, allowing you to sell without incurring a loss.
Interest rate adjustments
The Bank of England’s monetary policy changes in early 2025 could have a significant impact on homeowners with negative equity. As interest rates play a crucial role in mortgage affordability and housing market stability, adjustments to the base rate may influence how easily homeowners can manage or escape negative equity.
- Lower interest rates typically result in lower mortgage repayments for homeowners on variable or tracker mortgages, making it easier to manage existing debt.
- For those looking to remortgage from negative equity, this could mean more affordable refinancing options if lenders adjust their lending criteria.
- However, a lower base rate can also stimulate demand in the housing market, which might slow price drops or even encourage price recovery, reducing the number of homeowners in negative equity over time.
What to do if you’re in negative equity
If you find yourself in negative equity, consider the following steps:
- Stay put: If possible, continue making your mortgage payments and wait for property values to recover. Over time, this can naturally lift you out of negative equity.
- Overpay your mortgage: If your financial situation allows, making extra payments can reduce your mortgage balance more quickly. Ensure there are no penalties for overpayment by consulting your lender.
- Seek professional advice: Financial advisors or mortgage brokers can provide personalised guidance based on your circumstances. They can help you explore options like remortgaging or accessing government schemes.
Navigating negative equity requires careful consideration and informed decision-making. Staying updated on current regulations and understanding your options can help you manage this situation effectively. Always consult with professionals to determine the best course of action for your specific circumstances.
Why not contact your local Parkers estate agents to understand options?
