Negative Equity

What is Negative Equity?

Negative Equity is the difference between the value of your house and your mortgage, when the value is less than the mortgage outstanding. This is caused by a general fall in the market value of a mortgaged property. This can create difficulties for individuals who can no longer maintain the repayments on their mortgage as they will be unable to cover the full amount of the mortgage if they sell the house.

This is why lenders will generally not lend above 90% LTV of the property, to ensure this situation does not arise. It is also why lenders charge Higher Lending Charges on high LTV properties to cover them on any potential loses if the house is repossessed.


Q: Can I take out finance to cover negative equity?

A: You might be able to, but you may find few lenders will be willing to loan money specifically to cover negative equity. Alternatively, Mortgage Indemnity Insurance may cover this.

Q: What happens if I’m selling house in negative equity?

A: You might be able to pay off the difference in the property value to the mortgage lender, but for some mortgage lenders this can incur an additional fee. If there are any improvements you can make to your home to improve its value (such as redecorating or renovation), this could lessen the gap.

Q: Is it the same with other financed purchases?

A: Yes. It’s a common problem with finance taken out on new cars, as most depreciate in value almost immediately after purchase. That means at the end of the repayment period you’re still paying off the sticker price for a new car, but the car itself is now worth second-hand money.

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