Negative equity: what it means and what you can do about it

You might not know whether or not you’re in negative equity.

First of all, check your mortgage statement or contact your lender to find out how much you owe now.

Next, ask a local estate agent to value your home or hire a surveyor to do a valuation (they will charge for this).

If the value of the property is below what you owe, then you are in negative equity.

It’s an immediate problem if you want to sell your home.

Unless you have savings that you can use to repay the difference between the value of your home and the mortgage, you might find it difficult to move.

It can also be difficult if you want to remortgage; reducing your options to shop around for a new fixed rate or a cheaper deal.

While remortgaging could be more difficult, your current lender is likely to offer a product transfer. If you’re on a fixed rate that is due to end you can speak to your lender about your options up to six months before.

If you don’t opt for a product transfer, you’ll normally be moved onto the lender’s standard variable rate (SVR).

How easy it is to move will depend on several factors, such as:

• how much negative equity you have
• the value of the property you want to move to
• if you are up-to-date with your existing mortgage
• how much of a deposit you can raise for the new property.

Talk to your lender in the first instance and find out what help they can give you.

A very small number of lenders offer a ‘negative equity mortgage’ and these products often come with higher interest rates.

This will let you transfer your negative equity to your new property, but you will still be expected to pay a deposit.

Use our Budget Planner to draw up a budget and start to grow your savings.

If possible, it’s a good idea to try and reduce your negative equity by overpaying your mortgage.

Firstly, check whether your existing mortgage will let you make overpayments and, if you can, how much you can overpay before you get an early repayment charge.

Next, work out how much extra you can afford to pay every month or as a one-off.

Check a mortgage overpayment calculator like this one from MoneySavingExpert

This will tell you how much difference your extra payments could make.

Several mortgage brokers and lenders also have this tool.

Another option might be to rent out your home if your lender will agree to this.

This would mean you keep the existing mortgage, although you will need permission from your lender and may have to pay a higher interest rate and /or an annual 'Consent to Let' fee.

You also have to tell your insurer that you’re renting out your home.

If interest rates rise, it’s important to make sure you can still afford your mortgage payments.

It’s particularly important if you’re in negative equity as you could be more vulnerable to having your home repossessed.

If you are already in arrears on your mortgage, talk to your lender and get advice from one of the debt advice charities.

Useful links:

• in England and Wales, talk to Citizens Advice or Shelter
• in Scotland, talk to Citizens Advice Scotland or Shelter Scotland
• in Northern Ireland, talk to the Housing Rights Service