Selling a House with Negative Equity: What Are Your Options?

Falling into negative equity is one of the most stressful situations a homeowner can face. You are tied to a property that is worth less than what you owe on it, and the options that feel straightforward in a normal market — selling, remortgaging, moving — suddenly become complicated or unavailable. According to UK Finance, the number of UK homeowners in negative equity fluctuates with property prices, but even in a relatively stable market, tens of thousands of households find themselves in this position.

This guide explains what negative equity means in practice, how to check whether you are affected, and what you can realistically do about it. Whether you need to sell, want to move, or are simply trying to work out your options, this is a practical overview of where you stand and what steps to take next.

What is negative equity?

Negative equity is the gap between what your property is currently worth and what you still owe on your mortgage, when the mortgage balance is higher. For example, if your home is valued at £200,000 but your outstanding mortgage is £230,000, you are in negative equity of £30,000.

It typically happens in one of several ways:

• Falling house prices. If property values drop after you buy — as they did in parts of the UK following the 2008 financial crisis and during regional slowdowns since — your property may be worth less than you paid for it.
• High loan-to-value purchase. If you bought with a small deposit (for example, 5% or 10%), even a modest dip in prices can push you into negative equity because you started with very little buffer.
• Interest-only mortgage. If you have been paying interest only, your capital balance has not reduced, so you have not built up equity through repayments.
• Additional secured borrowing. If you have taken out a second charge loan or further advance against the property, your total secured debt may now exceed the property's value.

How to check if you are in negative equity

Before making any decisions, you need to establish your actual position. This requires two figures:

1. Your current mortgage balance. Check your latest mortgage statement, log in to your lender's online portal, or call them directly. Ask for the redemption figure — the amount you would need to pay to clear the mortgage in full today — as this includes any early repayment charges or fees. For more on these charges, see our guide on early repayment charges.
2. Your property's current market value. You can get a rough estimate from online valuation tools, but for a more reliable figure, check recent sold prices of comparable properties using HM Land Registry's Price Paid data or ask two or three local estate agents for a free market appraisal. Estate agents may overvalue to win your instruction, so take the average and be realistic.

If your mortgage balance (including any early repayment charges) is higher than the estimated market value, you are in negative equity. The difference between the two figures is the size of your negative equity.

Can you sell a property with negative equity?

Yes, it is legally possible to sell a property with negative equity, but it is not straightforward. The core problem is this: when you sell a property, the mortgage must be repaid in full for the lender to release their legal charge over it. If the sale proceeds are not enough to cover the outstanding mortgage, you cannot simply complete the sale and walk away from the rest.

To sell with negative equity, you need:

• Your lender's consent. Your mortgage lender holds a charge on the property. They must agree to release it, even if the sale price does not cover the full balance. Without their agreement, your solicitor cannot complete the transaction.
• A plan for the shortfall. Your lender will want to know how the difference between the sale price and the outstanding mortgage will be repaid. You will need to agree this before the sale can proceed.

For a detailed look at all the paperwork involved in a standard sale, see our guide on the documents needed to sell a house.

Options for dealing with the shortfall

If you do decide to sell, the shortfall — the gap between the sale proceeds and your mortgage balance — must be addressed. There are several ways to handle it:

Pay off the shortfall from savings

If you have enough savings or other assets to cover the difference, this is the simplest option. You pay the shortfall at completion, the lender releases the charge, and the sale completes normally. This avoids additional borrowing and keeps your credit record clean.

Take out an unsecured personal loan

If you cannot cover the shortfall from savings, you may be able to borrow it through an unsecured personal loan. This converts the shortfall from a secured debt (tied to your property) into an unsecured debt that you repay over a fixed term. Be aware that personal loan interest rates are typically higher than mortgage rates, and your ability to borrow will depend on your credit score and income. Factor in the total cost of the loan, including interest, when deciding whether this approach is viable.

Negotiate with your lender

In some circumstances, your lender may agree to one of the following arrangements:

• Shortfall repayment plan. The lender allows the sale to complete and converts the shortfall into a separate debt, which you repay in instalments over an agreed period. This is effectively an unsecured loan from your mortgage lender.
• Reduced settlement. In rare cases, particularly where you are in serious financial difficulty and the lender believes they are unlikely to recover the full amount, they may accept less than the full shortfall. This is more common when the alternative for the lender is a costly repossession. Any amount written off may have tax implications — seek advice from an accountant or debt adviser.

Under FCA rules (specifically MCOB 13, the FCA's rules on dealing with mortgage customers in payment difficulties), lenders must treat borrowers fairly and consider all reasonable options before starting repossession proceedings. Contact your lender early and be honest about your situation — they have more flexibility than many homeowners realise.

Negative equity mortgages and porting

If you need to move rather than simply sell, there are two specific mortgage options worth exploring:

Negative equity mortgage

A negative equity mortgage allows you to transfer the shortfall from your current property onto the mortgage for a new property. In effect, you are borrowing more than the new property is worth to cover the loss from the previous sale. These products are uncommon and are typically only offered by your existing lender. Criteria tend to be strict: you will usually need a strong income, a clean payment record, and the new property must meet the lender's requirements. Speaking to a whole-of-market mortgage broker is the best way to find out whether this is available to you.

Porting your mortgage

Porting means moving your existing mortgage deal to a new property. If you are on a fixed-rate deal and want to avoid early repayment charges, porting can save you money. However, porting with negative equity is difficult because you still need to cover the shortfall from the sale of your current home, and the lender will reassess your affordability as though you were applying for a new mortgage.

If you are considering selling and buying at the same time, our guide on selling and buying at the same time covers the process and the challenges involved in managing a chain.

Alternatives to selling

Selling with negative equity is not always the right answer. If your reason for wanting to sell is not urgent, there are alternatives that may leave you in a better position:

Wait for prices to recover

If you can afford your mortgage payments and do not need to move urgently, staying put and waiting for property values to rise is often the most financially sensible option. UK house prices have historically recovered from downturns over the medium term, though recovery timescales vary significantly by region. While you wait, continue making your regular mortgage repayments — each payment reduces the capital balance and brings you closer to positive equity. Overpaying your mortgage (if your deal allows it without penalty) can accelerate this.

Rent out the property (consent to let)

If you need to move but do not want to sell at a loss, letting out your property can buy you time. However, you must get your mortgage lender's permission first. This is known as consent to let and is different from a full buy-to-let mortgage.

Key considerations:

• Your lender may charge a higher interest rate or a one-off fee for consent to let.
• Consent to let is typically granted for a limited period (often 12 months, renewable) and may require you to demonstrate that you intend to return to the property or sell it eventually.
• You become a landlord with legal obligations under the Housing Act 2004, including gas safety certificates, energy performance certificates, deposit protection, and compliance with the Homes (Fitness for Human Habitation) Act 2018.
• Rental income is taxable. You must declare it to HMRC through self-assessment, and you may lose your capital gains tax principal private residence relief if the property is no longer your main home.
• You need landlord's buildings and contents insurance, not a standard homeowner policy.

Overpay your mortgage

Most mortgage deals allow you to overpay by up to 10% of the outstanding balance each year without incurring an early repayment charge. Overpaying reduces your capital balance faster, which can help you move out of negative equity sooner. Check your mortgage terms or speak to your lender about the overpayment limits on your specific deal.

Remortgage when you can

Remortgaging is usually not possible while you are in negative equity, because new lenders will not offer a mortgage for more than the property is worth. However, once you have returned to positive equity — even marginally — you may be able to remortgage to a better rate. Keep an eye on your property's value and your mortgage balance, and speak to a broker when the numbers are close.

Voluntary repossession: the last resort

Some homeowners in negative equity consider handing back the keys — known as voluntary repossession or voluntary surrender. This should only ever be considered as an absolute last resort, after you have taken independent debt advice and explored every other option.

Here is why:

• You still owe the shortfall. When a lender repossesses a property (whether voluntarily or by court order), they sell it — often at auction, often quickly, and often for below market value. You remain liable for the difference between the sale price and your outstanding mortgage, plus the lender's legal costs, estate agent fees, and any maintenance costs they incurred.
• Severe credit impact. A repossession stays on your credit file for six years. During that time, you will find it very difficult to obtain a mortgage, credit card, or personal loan. Many landlords also carry out credit checks, which could affect your ability to rent.
• Shortfall debt can be pursued. Lenders have up to six years (twelve years in some circumstances) to pursue you for the shortfall debt after repossession. They can obtain a county court judgment (CCJ) against you if you do not pay.

If you are struggling to keep up with payments and feel like you are running out of options, contact a free debt advice service before making any decisions. See the sources section below for organisations that can help.

Impact on your credit score

Negative equity in itself does not show on your credit report. Credit reference agencies (Experian, Equifax, TransUnion) record your financial behaviour, not your property's value. However, the consequences of negative equity can affect your credit score in several ways:

The key takeaway is that how you handle the situation matters more than the situation itself. Keeping up with payments, communicating with your lender, and managing any shortfall responsibly will minimise the damage to your credit rating.

When to seek independent advice

If you are in negative equity and unsure what to do, getting professional advice early is crucial. There are two types of advice you may need:

• Mortgage and financial advice. A whole-of-market mortgage broker can tell you whether porting, a negative equity mortgage, or remortgaging is feasible in your circumstances. They can also help you understand the cost implications of each option. Make sure any adviser you use is regulated by the Financial Conduct Authority (FCA).
• Free debt advice. If you are struggling with payments or cannot afford the shortfall, speak to a free debt advice service before taking any action. These organisations can help you understand your rights, negotiate with your lender, and find solutions you may not have considered.

If you do decide to sell, preparing your legal documents early can help the process move as quickly as possible. For tips on speeding up a sale, see our guide on how to sell your house fast. You should also understand the full breakdown of conveyancing costs so there are no surprises during the process.

Sources

• Financial Conduct Authority (FCA) — MCOB 13: Arrears, payment shortfalls and repossessions — fca.org.uk
• UK Finance — Mortgage arrears and possessions data — ukfinance.org.uk
• Citizens Advice — Negative equity and your options — citizensadvice.org.uk
• StepChange Debt Charity — Mortgage shortfall advice — stepchange.org
• National Debtline — Mortgage arrears factsheet — nationaldebtline.org
• GOV.UK — Repossession: your rights — gov.uk
• HM Land Registry — Price Paid data — gov.uk/government/collections/price-paid-data
• HM Treasury — Mortgage Charter (June 2023) — gov.uk
• Housing Act 2004 — legislation.gov.uk
• Homes (Fitness for Human Habitation) Act 2018 — legislation.gov.uk

Related guides

• Selling Your House After Redundancy

Frequently asked questions