Finding yourself in negative equity can be a daunting experience. You might feel stuck in a property you no longer want or need, and the idea of moving can seem like a distant dream. But the truth is, while being in negative equity presents challenges, it doesn’t necessarily mean you’re trapped in your current home forever.
Let’s break it down and explore what negative equity means, what your options are, and how you might still be able to move – even if the numbers aren’t exactly in your favour.
What is Negative Equity?
Negative equity happens when the value of your home falls below the amount you still owe on your mortgage. For example, if you owe £200,000 on your mortgage but your home is only worth £180,000, you’re in negative equity to the tune of £20,000.
This can occur when house prices drop, or if you’ve only paid interest on your mortgage, borrowed more on your mortgage or taken out a high loan-to-value (LTV) mortgage, meaning you borrowed most of the property’s purchase price. While house prices tend to rise in the long term, short-term dips or individual circumstances can leave you in a tricky position if you need or want to sell your home.
Can I Move House if I’m in Negative Equity?
The short answer is yes, you can move house while in negative equity – but it’s not straightforward, and your options will depend on your personal circumstances and how deep into negative equity you are. Let’s take a look at your possible routes.
Wait It Out if You Can
One option, if the reason is down to property prices rather than individual circumstances, is simply to wait for the housing market to recover and for your property’s value to increase. While this isn’t a quick fix, house prices tend to rise over the long term, so you could eventually get back into positive equity.
If you’re not in a rush to move, staying put might be the best strategy. During this time, you can continue paying off your mortgage, which will gradually reduce your balance and potentially help you climb out of negative equity. Plus, if your financial situation allows, making overpayments on your mortgage can speed up the process.
Consider Porting Your Mortgage
If you absolutely need to move (for example, due to a growing family or a job relocation), one option to explore is porting your mortgage to a new property. Some lenders allow you to transfer your existing mortgage, including the negative equity portion, to a new home.
However, there are a few things to keep in mind:
Lender approval: Not all lenders offer porting, and those that do may have strict criteria. Your financial situation will be reassessed, and your lender will want to be confident that you can afford the new mortgage – including the negative equity.
Affordability checks: Even if your mortgage is portable, your lender will need to ensure that you can afford the repayments on the new property. If your financial circumstances have changed (for better or worse), this could impact their decision.
Making up the difference: If you owe more on your current mortgage than your home is worth, your lender may ask you to pay off the difference (the negative equity) before they approve the move.
Porting can work if you’re committed to moving and can meet your lender’s requirements, but it’s not always easy.
Selling Your Home in Negative Equity
If porting isn’t an option and you’re determined to sell your home, you can still do so – but you’ll need to cover the shortfall between the sale price and the remaining mortgage balance.
Here’s how it works:
– You sell your home for less than you owe on your mortgage.
– You use the proceeds from the sale to pay off as much of the mortgage as possible.
– You’ll then need to cover the remaining amount, often referred to as a shortfall.
The shortfall will need to be paid off either upfront or through an agreement with your lender. Some lenders may offer repayment plans to cover the outstanding amount, but this will depend on their policies and your ability to meet the payments.
Selling a property in negative equity can be a tough decision, but if you can handle the financial hit, it may still be the right move for you.
Speak to Your Lender
If you find yourself in negative equity and considering a move, the first step should always be to speak with your lender or professional mortgage advisor. They can explain what options are available to you based on your specific situation.
In some cases, lenders may be willing to negotiate, especially if your circumstances are changing due to reasons beyond your control, like a job relocation or personal circumstances that make staying in your current home impractical.
Lenders want to avoid repossession as much as you do, so they may be more flexible than you expect. But being upfront with them is key to working out a solution.
Consider Renting Out Your Property
If selling or porting isn’t an option and you need to move, you might want to consider renting out your current property and moving to a new home as a tenant. This can give you more flexibility while you wait for house prices to rise and climb out of negative equity.
Before going down this route, you’ll need to get permission from your lender to let your property (this is called ‘consent to let’), and you’ll also need to consider whether becoming a landlord is something you’re comfortable with, as it comes with additional responsibilities and costs.
Final Thoughts
Being in negative equity can feel like a big hurdle, but it doesn’t mean you’re stuck. Whether it’s waiting for the market to recover, porting your mortgage, or selling and paying off the shortfall, there are options available to help you move house if you need to.
If you’re unsure of the best path forward, speaking with a mortgage broker can help you weigh your options and find the most practical solution. Remember, every situation is different, and with the right advice and support, you can navigate the challenges of negative equity and still make your move.
Get in touch with us today to discuss your options and find the best way forward. We’re here to help!