What is negative equity? And what does it mean for your property or chances of moving home? Find out all you need to know from our property terminology glossary.
Equity refers to ownership. It is the true worth of your assets once any debts or liabilities are taken away. Therefore, negative equity is when the value of the asset that was used to secure a loan (such as shares in a business, ownership of a house etc.) is less than the remaining balance on the loan.
For example, shareholders' equity is the amount that would be returned to shareholders of a business if all the company's assets were liquidated and all its debts repaid. Negative shareholder’s equity (also called stockholders' equity) means that these liabilities and debts would exceed the assets.
In the world of property, equity refers to the portion of a property that you own. A home that is in negative equity is a property whose market value is less than the mortgage secured on it. This is normally the result of falling property prices.
For example, if your house was worth £300,000 when you began your mortgage, but over time it's market value fell to £250,000, then your property would be in negative equity. Negative equity doesn’t necessarily mean that your house is worthless and has no value, often it is simply that it's market value is less than what you bought the property for originally.
There are four ways to minimise your negative equity:
If you are looking to move home but have negative equity, it can feel like you are locked into your current property. But it is possible to move house with negative equity, although this depends on various factors:
To find out if you can move with negative equity, talk to your lender and find out how they can help. In some instances, lenders may offer a ‘negative equity mortgage’, which will transfer your negative equity to your new house. However, this is not common as very few lenders offer them.
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