What does negative equity mean?

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Negative equity is when the value of your property is lower than the amount you owe your mortgage lender

Confused? Let’s start at the very beginning.

Equity’ refers to how much of your property you own outright (as opposed to how much of your mortgage you still need to pay off). Normally, your equity will increase over time. After all, most properties gradually go up in value. However, it’s possible that instead, your house’s value goes down.

If it goes down enough, you could end up with the balance of your mortgage being higher than the value of your property. Ta-da, you’re in negative equity. You want to avoid that happening as much as possible because this can make it really hard to remortgage or move houses in the future.

Nuts About Money tip

If you’re in negative equity, the best solution is often just to wait until the house prices in your area go back up. Once they do, you’ll end up gaining more equity in your property again.

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