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What is negative equity?

Negative equity is when your property is worth less than what you owe on your mortgage and other loans secured against your home.

How does negative equity affect you?

Equity is the value of your property minus what you owe on your mortgage. In other words, it’s the amount that you own.

Negative equity can be a result of falling property prices. If the value of your house or flat falls – you could owe more than your home is currently worth. 

For example, if you bought a house for £300,000 with a mortgage of £270,000 and the property is now worth £250,000 – you would be in negative equity. 

Remember – owning a home is a long-term investment, and property prices can go up and down. 

If you can pay your mortgage each month, negative equity isn’t necessarily an immediate problem. It becomes an issue if you need to sell your property, switch mortgage rates, or remortgage with a new lender.

Can you sell a property with negative equity?

You’ll need your mortgage lender's permission before selling a property in negative equity.

Selling your home with negative equity will mean you’ll have an outstanding amount on the mortgage – plus any other loans secured against your home – that you’ll need to pay back after the sale.  

If you don’t have the funds available to pay the shortfall, it may be difficult for you to sell.

Can you switch rates or remortgage with negative equity?

Many lenders are unable to loan you more money than your home is worth. This will limit your options if you want to switch your rate or mortgage lender.

When your current mortgage deal ends, you may need to move onto your existing lender’s standard variable rate (SVR) until the situation improves. Some lenders still allow you to switch mortgage rates, even with negative equity.

Keep in mind – the interest rates on SVR mortgages tend to be higher than most mortgage options, so your monthly repayments could increase. 

What can you do if you’re in negative equity?

Wait for your equity to build

If you’re in negative equity by a small amount, it may prove temporary. A rise in property prices could take your equity back above zero. 

Regardless of the current value of your home, continue to make your mortgage payments as normal. If you don’t need to sell the property, you can stay put and wait for your equity to build. 

Make overpayments where possible

If you can afford to – and your mortgage allows it – you may be able to pay more towards your mortgage. As your mortgage balance reduces, it will give you a lower loan-to-value (LTV) ratio – reducing your negative equity. 

Many lenders allow you to overpay up to a certain limit without incurring an early repayment charge (ERC) but not all do. It's important to check with your lender, especially the annual amount of overpayment allowed. For example, some lenders allow 10% of the mortgage balance to be paid as an overpayment per year.

Get help and support

Being in negative equity can put you in a tricky financial situation but help is available. For example, if you need to sell your home or your existing mortgage deal is coming to an end, your lender can discuss your options with you.  

If you're worried about paying your HSBC mortgage, we can help you put a plan in place.

Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.