What happens if you have negative equity

Home values fluctuate, so don't panic if average prices in your area drop by a percentage or two. Even if your property's value decreases slightly, it would need to drop by more than the amount you've paid in deposit and repayments for you to be in negative equity. That said, market crashes can happen. Of course, an average price is a guideline only, and may not reflect house price activity in a particular area or even street. Find out more: how much is your house worth?

If you were to sell your property, you wouldn't make enough to repay your outstanding loan to the bank and would continue to owe money. If you wanted to remortgage, the lender would be unlikely to approve a new deal, as your property would not be sufficient security.

This means you'll likely be stuck on the lender's standard variable rate when your deal expires. That said, negative equity won't necessarily impact on your credit score , unless you default on your payments or need to move house and cannot make up the shortfall. If you're able to stay in your property and continue meeting your mortgage payments each month, negative equity may not affect your everyday finances.

The options available to you, if you've fallen into negative equity, will depend on your personal circumstances, and what you hope to do in the coming years. In this situation, your best bet may be to continue making repayments, which over time will build up the equity you hold. You might also consider making over-payments, if your mortgage deal allows it, which would bring down your loan more quickly. Mortgage rates tend to be higher than savings interest, so you might be better off putting some cash into your mortgage loan.

Over the long term, prices may begin to rise again and help reduce the level of negative equity or even reverse it. It may also be possible to add value to your property by renovating or adding features that are in demand in your local market. But this can be highly risky - you could spend more on renovations than the value that you gain.

In most cases, your cash is likely better used paying down the loan. Normally, when your mortgage deal comes to an end, it's wise to consider remortgaging - but while it's worth trying this, lenders may not offer you a new deal if you're currently in negative equity. This means you'll move onto the lender's standard variable rate SVR , which will generally be higher, meaning your repayments will go up.

As your deal is coming to an end, make sure you can continue to meet the new payments on the SVR over the long-term. Our mortgage repayments calculator shows you how interest rate changes will affect your monthly repayments. If it's at all possible, you should avoid selling your house while in negative equity - if you're forced to sell for less than the loan amount, you'll be responsible for making up the shortfall.

That said, your mortgage lender may allow you to repay the debt over time using a payment plan, so it's worth talking to them before you sell. Keep in mind that selling while in negative equity will mean you won't make a profit and will lose the deposit you paid - so you may not be able to buy a new property straight away. A very small number of specialist lenders offer 'negative equity mortgages', which enable you to transfer the negative equity to a new property, saving you from repaying the debt.

But you might face early repayment charges on your old mortgage, and the interest rates are generally very high. Compensation may factor into how and where products appear on our platform and in what order.

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This is also referred to as being upside down on your car loan. When trading in a car that has negative equity, you have several options — but they can be costly, and some require a big chunk of money out of your pocket. Contacting your lender is an easy way to find out how much money you owe on your car loan. Your loan payoff amount can be different from your current loan balance because it includes any interest you owe through the day you pay off the loan, in addition to any unpaid fees.

Delaying your trade-in is generally the better option financially. But this works only if you can wait on getting a new car. Negative equity: what it means and what you can do about it. Navigate to What does negative equity mean? How to reduce negative equity? Arranging an independent valuation can give you a better idea of the difference between the value of your home and the balance of your mortgage.

Avoid redrawing from your mortgage — if you have a redraw facility for your home loan and have paid extra onto your mortgage in the past, try to leave the funds where they are. If the property market is in a slump, getting ahead on your mortgage is even more important.

Do some renovations — making simple improvements can give your home a lift in value, potentially reducing the gap between your mortgage balance and the sale price of your home. Focusing on improvements that buyers want will add the most value. Why negative equity can be a problem? Also in Refinancing. Making a home loan application when you're self-employed. Registered in England and Wales No. Lloyds Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number Telephone calls may be monitored or recorded in case we need to check we have carried out your instructions correctly and to help us improve our quality of service.

What is negative equity? Who is this page for? In this article. How does negative equity happen? How to work out your equity Equity is the value of your property that you own outright. How much you still owe on your mortgage. Interest-only mortgages Interest-only mortgages can increase the risk of negative equity. The total amount you owe is repaid at the end of the mortgage. Moving home and negative equity Negative equity can mean selling your home for less than the value of the mortgage you took out to buy it.

How to find out if you are in negative equity. You can find out whether you are in negative equity by following these steps: Make an appointment with your lender or speak to them on the phone.