Negative equity explained (and what it means for remortgaging)

Negative equity is a mortgage position that can feel unsettling, especially if you’re thinking about remortgaging or moving house. It doesn’t automatically mean you’re in immediate trouble, but it can restrict your options because lenders assess risk using factors such as loan-to-value (LTV) and the realistic value of the property.

This guide explains what negative equity is, why it happens, and the main ways homeowners typically manage the situation.

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Negative equity and remortgaging

What is negative equity?

Equity is the difference between what your home is worth and how much you owe on your mortgage.

You’re in negative equity when your mortgage balance is higher than the current value of your property.

For example:

You buy a home for £300,000 with a £30,000 deposit, borrowing £270,000.
Later, the property value drops to £250,000.
You’ve repaid £5,000 of the mortgage capital, so your remaining balance is £265,000.

In this scenario, the home is worth £250,000 but the mortgage balance is £265,000, so you have negative equity of £15,000.

How do you end up with negative equity?

Negative equity usually comes from a mismatch between property values and your mortgage balance.

Common reasons include:

Property prices fall after you buy. Even if you’ve made repayments, the value of the home may drop faster than your mortgage balance reduces.
Your mortgage balance reduces more slowly. This can happen with certain repayment structures.
You started with a small deposit. Less initial equity means there’s less “buffer” if values decline.
Timing matters. If a downturn happens soon after purchase, you may not have had enough time to build equity.

Different mortgage types reduce the balance at different speeds. For example, with interest-only mortgages, the capital may not reduce in the same way during the term. If the property value falls while the balance stays high, negative equity can be more difficult to escape.

How negative equity affects remortgaging and moving

When you’re in negative equity, remortgaging can become harder because lenders typically evaluate risk using LTV and the likelihood of recovering funds if they had to sell the property.

In practice, this can mean:

Fewer lenders may consider a standard remortgage
Your LTV may be higher than a lender’s usual criteria, even if your income and credit history are strong
Your options may depend on how much negative equity you have and how quickly your position could realistically improve

Can you remortgage if you’re in negative equity?

It can be possible, but it depends on your individual circumstances and the approach of the lender.

Routes that may be explored include:

Waiting while you reduce the balance: continued repayments can gradually improve your LTV
Making overpayments (where your mortgage terms allow): reducing the mortgage balance faster can help move you toward a more acceptable LTV. It’s important to consider whether early repayment charges apply
Reviewing your repayment strategy: in some cases, restructuring can help the balance reduce more quickly, depending on your current mortgage terms
Specialist lending routes: some specialist lenders may consider cases that mainstream lenders decline, particularly where there is a clear plan to manage risk

Because lender decisions are highly individual, the most suitable route usually depends on your mortgage balance, property value, affordability, and the terms of your existing deal.

What is a “negative equity mortgage”?

A negative equity mortgage is a specialist concept where the negative equity is effectively carried into the new arrangement.

Key points to understand:

It’s not widely available and is typically offered by a limited number of specialist lenders
It may involve higher costs than a standard remortgage
You may also need to consider any early repayment charges on your current mortgage

This type of solution is generally considered when there is a genuine need to move and waiting isn’t practical, so the details matter, including what’s affordable and what the lender will accept.

How do you get out of negative equity?

Getting out of negative equity usually comes down to one or both of the following:

Reducing what you owe (the mortgage balance)
Increasing what the property is worth

Practical ways to recover:

Property improvements: certain upgrades can increase market value, though results vary by area and market conditions
Plan timing carefully: if you can wait, you may eventually reach a position where more lenders are willing to consider remortgaging

If moving is unavoidable, the focus often shifts from “eventually” to “workable now”. That may involve specialist options, structured repayment approaches, or a plan designed to reduce lender risk.

If you’re considering remortgaging while in negative equity, the most important starting point is understanding your exact position: your mortgage balance, current property value, and how your repayments affect your ability to meet lender requirements.

Negative equity FAQs

There isn’t a single, universal government scheme designed specifically to remove negative equity for homeowners. Broader housing support may exist in some circumstances, but negative equity itself typically isn’t something that can be directly fixed through a dedicated programme.

Negative equity on its own doesn’t automatically damage your credit score. However, if negative equity is linked to missed payments, arrears, or other mortgage difficulties, that can affect your credit file.

Yes, it’s possible. In many cases, you would need to repay the difference between the sale price and what you owe to complete the sale.

Depending on your circumstances, alternatives such as specialist lending or structured arrangements may be considered.

Some homeowners explore letting a property to improve cashflow. Whether this is possible depends on your mortgage terms and any lender consent requirements.