Question 1

What is negative equity on a mortgage?

Accepted Answer

Negative equity occurs when the outstanding balance on your mortgage is higher than the current market value of your property. For example, if you bought a home for £300,000 with a £270,000 mortgage and the property's value subsequently falls to £250,000, you are £20,000 in negative equity — you owe more than the property is currently worth. Negative equity typically arises after a period of falling house prices, or when a borrower purchased at a peak with a high loan-to-value (LTV) mortgage and the market has since corrected. It is most common among borrowers who bought with small deposits (95% or 100% LTV) and have not been in the property long enough to reduce the loan materially through repayments. Negative equity is not illegal and does not automatically mean you are in financial difficulty — you can continue making repayments normally — but it significantly restricts your options when you want to move, remortgage, or sell.

Question 2

Can I remortgage if I am in negative equity?

Accepted Answer

Remortgaging to a different lender when in negative equity is extremely difficult in practice. New lenders require the property to be used as security, and they will only lend up to a percentage of the property's current value — typically no more than 95% LTV for standard residential mortgages. If you owe more than the property is worth, no lender will extend a new mortgage because there is insufficient security for the loan. Your most realistic option is to remain with your existing lender and request a product transfer — switching to a new deal offered by the same lender without a full affordability or valuation reassessment. Most lenders allow product transfers for borrowers who are up to date with payments regardless of LTV, as the loan already exists on their book. The alternative is to repay the negative equity gap before remortgaging — either through overpayments, savings, or waiting for property prices to recover — until the LTV returns to a level where a new lender will accept you.

Question 3

What happens if I need to sell my property in negative equity?

Accepted Answer

Selling a property in negative equity means the sale proceeds are insufficient to repay the outstanding mortgage. This results in a shortfall — the remaining amount you owe after the sale — which the lender can pursue as an unsecured debt. You would need to repay the shortfall from savings or other resources, or negotiate a settlement with the lender. In some cases, lenders agree to accept the sale proceeds in full and write off the shortfall, particularly if the borrower is in genuine financial hardship, but this is not guaranteed and will affect your credit record. If you cannot repay the shortfall and the lender pursues it, you may face a county court judgment (CCJ) or, in serious cases, bankruptcy proceedings. For this reason, selling in negative equity should be a considered last resort — staying put and waiting for values to recover, or negotiating a product transfer while you build equity through repayments, is often preferable if your circumstances allow it.

Question 4

How does negative equity affect self-employed or complex income borrowers differently?

Accepted Answer

For self-employed or complex income borrowers, negative equity creates particular complications during remortgage windows. Standard borrowers rolling off a fixed rate in negative equity can often obtain a product transfer with their existing lender without a new income assessment. However, if your lender does require income verification for a product transfer — some do for certain borrower types — the income evidence required (SA302 returns, accountant's certificates, or director's payslips) must still be provided. The more significant risk for complex income borrowers is that if their income has declined in the period since the original mortgage, a lender requiring reassessment for a product transfer may find affordability does not meet current standards. In this scenario, borrowers can face a situation where they cannot remortgage away from the SVR (due to negative equity) and cannot product-transfer (due to changed income) — leaving them on a high SVR with limited options. The best protection is to seek specialist advice before the fixed period ends.

Question 5

At what LTV do lenders become concerned about the risk of negative equity?

Accepted Answer

Lenders apply stricter criteria and higher rates as LTV increases, reflecting the greater risk that a property price fall could push the borrower into negative equity. The most significant pricing and criteria thresholds are typically at 60%, 75%, 80%, 85%, 90%, and 95% LTV. Above 90% LTV, the choice of lenders narrows considerably and rates are materially higher. Above 95%, only a small number of specialist products are available. Lenders managing their overall portfolio risk consider the proportion of their book at high LTV — and in periods of anticipated price falls, some lenders withdraw high-LTV products entirely or temporarily. For borrowers already at or near 95% LTV, the buffer between their outstanding loan and potential negative equity is very small. Making overpayments during the fixed-rate period — reducing the outstanding balance faster than the standard amortisation schedule — is the most direct way to improve LTV and increase the distance from potential negative equity.

Question 6

Can I port my mortgage to a new property if I am in negative equity?

Accepted Answer

Porting a mortgage means transferring your existing deal to a new property when you move. If you are in negative equity on the property you are selling, porting creates a practical problem: your existing mortgage balance exceeds the sale proceeds, so you cannot fully discharge the existing loan from the sale. Any porting arrangement typically requires that the sale of the original property repays its mortgage — which is not possible in negative equity without additional funds to cover the shortfall. Some lenders allow porting in theory but the mechanics require the shortfall to be settled before the port can proceed. In addition, porting requires the new property to be acceptable to the lender as security, and your income and affordability to pass a new assessment as if it were a fresh application (subject to some existing-customer flexibility). For self-employed or complex income borrowers in negative equity who want to move, the options are limited and specialist advice is essential before entering into any property sale or purchase.

Negative Equity Mortgage FAQ