What Is Negative Equity in Mortgages?

Buying a home is a long-term investment, but property values do not always rise. In reality, changes in the housing market or borrowing a high percentage of a property’s value can sometimes unexpectedly leave homeowners owing more on their mortgage than their home is worth.

In this article, we explain what negative equity is, why it matters and your best negative equity mortgage options if you are affected. Along the way, we will also share insights from Boon Brokers’ latest Negative Equity Research to explore how homeowners perceive the risks of owing more than their home is worth in today’s housing market. Let’s begin.

How Does Negative Equity Work?

Mortgage lenders measure this using your loan-to-value (LTV) ratio, which compares the amount remaining on your mortgage with your property’s current market value. In the case that your mortgage balance becomes higher than what your property could realistically sell for (the market value), then you are in negative equity.

An important distinction is that this does not necessarily mean you have fallen behind on your mortgage repayments. You could make every monthly payment on time and still find yourself owing more than your property is worth. Instead, it simply reflects the relationship between your property’s current market value and the outstanding balance on your mortgage.

Let’s take a look at an example in practice:

A property is purchased for £250,000 with a £237,500 mortgage (95% loan-to-value). If the property’s value later falls to £225,000 while your outstanding mortgage balance remains at £232,000, your home would be worth £7,000 less than the amount you still owe.

In many cases, if you find yourself in a situation of negative equity, it does not usually require any immediate action. If you’re on a fixed-rate mortgage and continue making your monthly repayments, your mortgage will normally continue as agreed.

The impact becomes much more relevant when your fixed deal ends and you look into negative equity remortgage options. Your lender will reassess your loan-to-value (LTV) should you choose to remortgage or switch to a new mortgage product. Depending on your LTV, this may reduce the number of mortgage products available to you.

What Causes Negative Equity?

No single event causes negative equity. Instead, it usually develops when property values fall faster than the outstanding mortgage balance is repaid. This can happen for several reasons, and in many cases, more than one factor contributes at the same time.

Falling property prices can be one of the main triggers, leaving many recent buyers concerned about what happens if house prices fall. Boon Brokers’ research found that 44% of recent homebuyers believe they are likely to enter negative equity during their current mortgage term, underlining the level of concern many borrowers have about changes in the housing market.

Crucially, younger buyers who have just recently stepped onto the property ladder can be particularly vulnerable to any shifts in the housing market, specifically those buying with smaller deposits. Our research found that 56% of buyers aged 25-34 think entering negative equity is likely during their mortgage term, compared to significantly lower concern levels among older, more established homeowners.

Ultimately, owing more than your home is worth is rarely the result of a single event. More often than not, it develops through a combination of factors, such as buying a house with a small deposit just before property prices fall. With less equity available in the property, homeowners have less protection against changes in the housing market, making them more vulnerable to falling into negative equity.

How Do I Check My Home Equity?

Checking your home equity is straightforward and only requires two figures:

• Your property’s current market value.
• Your outstanding mortgage balance.

You can usually find your outstanding mortgage balance on your latest mortgage statement or by logging into your lender’s specific online account.

To estimate your property’s current market value, many borrowers use online property valuation tools, review recent sold prices in your local area using websites such as Rightmove or Zoopla, or request a market appraisal from a local estate agent.

For those who are looking to apply for a remortgage, your lender will usually arrange a professional valuation as part of the application process.

Once you have both figures, the calculation is simple. Subtract your outstanding mortgage balance from your property’s current market value. The result is the amount of equity you currently have in your home.

If your outstanding mortgage balance is higher than your property’s current market value, you are in negative equity because you owe more than the home is worth.

On the other hand, if your property’s value is higher than the amount remaining on your mortgage, you have positive equity, meaning part of your home’s equity belongs to you rather than your lender.

What Happens If My Mortgage Is Higher Than My Home’s Value?

Finding out that you owe more on your mortgage than your home is worth can naturally feel quite concerning. However, it’s important to note that in most cases this does not usually mean you need to take immediate action. Rather, your existing mortgage agreement will continue as normal, provided you keep up with your monthly repayments.

From a practical standpoint, many homeowners remain in this position for months or even years while they continue reducing their mortgage balance or wait for property values to recover. It’s worth mentioning that there is no guarantee that property values will recover.

Although this can limit some of your future financial options, such as remortgaging or moving home, being in a high loan-to-value deficit does not mean you must sell your property or that your lender will demand early repayment.

Is Negative Equity Bad?

Owing more than your property’s current value is rarely an ideal position, but what is crucial to understand is that it does not always create immediate financial difficulties.

While our 2026 research highlights that 91% of recent buyers are concerned about losing equity in their home, it’s important to understand the results of entering into negative equity.

For most homeowners who find themselves owing more on their mortgage than their home is worth due to falling property values, there is often very little day-to-day impact. Provided you continue making your mortgage repayments and do not need to move home or change your mortgage, your existing mortgage will usually continue as normal.

The primary challenges arise when your circumstances change and you need to remortgage, move home, or sell:

• Remortgaging: Switching to a new deal can be difficult if your high LTV exceeds lender criteria, potentially moving you onto a higher Standard Variable Rate (SVR).
• Selling a House: If you need to sell, sale proceeds may not fully cover your remaining mortgage debt, leaving a shortfall you must settle.
• Porting a Mortgage: Porting a mortgage in negative equity to a new property can be complex and depends heavily on your lender’s specific criteria.

On the other hand, Boon Brokers’ 2026 research found that only 17% of homeowners actually believe their property’s value has fallen since purchase. In fact, 33% of respondents identified higher mortgage repayments to be their biggest concern, outranking a decline in property value itself.

With that said, no matter your primary concern, it is always best practice to understand all of your options for remortgaging while in negative equity or selling a house in negative equity, before making a final decision.

How Do I Get Out Of Negative Equity?

There are several ways homeowners can gradually improve their equity position. The best and most appropriate option will always depend on your finances and plans for the future, including how long you intend to stay in your home and whether you expect to sell or remortgage in the near future.

Below are the most common ways homeowners can improve their equity position:

Wait for Property Values to Recover

Falling house prices are the most common trigger for property equity shortfalls, and so one of the most effective ways to improve your equity position is to wait for property values to recover.

If your home’s market value increases while your outstanding mortgage balance gradually reduces through your regular monthly repayments, the gap between the two will become smaller over time. However, it’s important to remember that property prices are influenced by market conditions and there is no guarantee when, or if, values will recover.

Make Mortgage Overpayments

If your mortgage agreement allows for overpayments, reducing your outstanding mortgage balance can help rebuild equity more quickly.

Even small overpayments can reduce the amount you owe and improve your loan-to-value (LTV) over time. It is always worth checking your lender’s terms and conditions on overpayments first, as some mortgages include early repayment charges which could inadvertently outweigh the financial benefits of making additional repayments.

Improve Your Property’s Value

Home improvements can be another way to increase your property’s market value. However, not every renovation will add more value than it costs.

Improvements such as modernising kitchens and bathrooms, increasing energy efficiency or extending living space can sometimes strengthen your equity position if they increase your home’s value.

Does Owing More Than My Home Is Worth Affect My Credit Score?

Negative equity is not something that appears on your credit report and it will not directly reduce your credit score. This is because credit reference agencies assess how you manage your borrowing, such as whether you make repayments on time, rather than the value of your property against your mortgage balance.

With that said, the situation can become more challenging when your current mortgage deal comes to an end. If you’re unable to remortgage because your loan-to-value (LTV) exceeds a lender’s acceptable threshold, you may have to move onto your lender’s Standard Variable Rate (SVR). As SVRs are often higher than fixed-rate or tracker mortgage deals, your monthly repayments could increase significantly.

Similar to a chain-reaction, if those higher repayments then become more difficult to afford and result in missed or late mortgage payments, your credit score may then be affected.

Ultimately, it is not negative equity itself that directly affects your credit score. Instead, it can contribute to financial difficulties that may result in missed or late mortgage repayments, which could then damage your credit history.

How Can a Mortgage Broker Help if I Am in Negative Equity?

Every homeowner’s finances and plans are different. A mortgage broker’s job is to help review your outstanding mortgage balance, loan-to-value (LTV), lender criteria and long-term plans and to find the next best option that is available to you.

At Boon Brokers, our dedicated advisers work with over 90 UK mortgage lenders and understand that every homeowner’s circumstances are different. If you’re concerned about being in negative equity, we will take the time to understand your situation, so that we can explain all the options available and help you identify the most appropriate next steps based on your needs.

Whether you’re approaching the end of your current mortgage deal or simply want reassurance about your options, contact Boon Brokers and our fee-free mortgage advisers will provide you with tailored mortgage advice that can help you plan your next steps.