Finance glossary
Negative Equity
Also known as: Underwater mortgage
In simple terms
Negative equity means your home is worth less than the mortgage you owe on it. If you owe £190,000 but the property would only sell for £170,000, you are £20,000 in negative equity.
On this page
What does negative equity mean?
Negative equity is when the amount left on your mortgage is greater than the current market value of your home. In other words, if you sold the property you would not raise enough to clear the mortgage, and would still owe the shortfall.
It usually happens after house prices fall, and hits hardest where the original deposit was small — a high loan to value leaves little cushion before value drops below the debt.
How negative equity works
As long as you keep up your payments, negative equity does not force any action — you can carry on living in the home and repaying as normal, and the position often recovers as you pay down the balance and if prices rise again.
The difficulty comes if you need to move or remortgage. Selling would leave a shortfall you must cover, and lenders are reluctant to offer new deals with no equity, so you may be stuck on your current rate (often the SVR) until the position improves.
How could this affect me?
Negative equity can trap you: harder to move, harder to switch to a cheaper deal, and a real problem if you must sell during it. The most important thing is usually to keep up payments and avoid selling until values recover.
If you are struggling to pay while in negative equity, speak to your lender early. They must treat you fairly and consider options, and free debt advice can help you weigh the choices.
Example
A home bought for £200,000 that has since fallen in value:
| Outstanding mortgage | £190,000 |
|---|---|
| Current property value | £170,000 |
| Shortfall (negative equity) | £20,000 |
Selling now would leave £20,000 still owed after the sale. Keeping up payments and waiting for values to recover usually improves the position. Figures are illustrative.
Things to watch out for
- Selling while in negative equity leaves a shortfall you still have to repay.
- You may be unable to remortgage and could be stuck on a higher rate until value recovers.
- A small original deposit (high LTV) makes negative equity far more likely if prices fall.
- Do not stop paying — keeping up repayments is what protects your home and rebuilds equity.
Know your rights
- If you fall into financial difficulty, FCA MCOB rules require your lender to treat you fairly and consider options such as changing the term or payment arrangements before any recovery action.
- A lender must normally obtain a court order before it can repossess your home, and repossession should be a last resort.
- You can get free, independent advice from MoneyHelper, Citizens Advice, StepChange or National Debtline, and complain to the Financial Ombudsman Service if treated unfairly.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- MoneyHelper, Negative equity: what it means and what you can do (opens in a new tab). Accessed 22 Aug 2026.
- FCA, MCOB 13 — arrears, payment shortfalls and repossessions (opens in a new tab). Accessed 22 Aug 2026.