Can You Remortgage in Negative Equity?

Understanding Negative Equity

Negative equity occurs when the outstanding balance on your mortgage exceeds the current market value of your property. For example, if you owe 220,000 pounds on a home that is now worth only 200,000 pounds, you are in negative equity of 20,000 pounds. This can happen when property values fall after purchase, or if you bought with a very small deposit and prices have not risen enough to offset your initial high LTV.

Negative equity is more common than many people realise, particularly among homeowners who bought at or near the peak of a property cycle, or who purchased in areas where prices have subsequently weakened. It does not affect your day-to-day life or your ability to live in and enjoy your home, but it does create complications when you want to remortgage or sell.

The key thing to understand is that negative equity is often a temporary situation. As you make mortgage repayments, your balance decreases, and over time property values tend to recover. The challenge is managing your mortgage costs during the period when you are in negative equity.

Why Standard Remortgaging Is Difficult in Negative Equity

Most mortgage lenders will not offer a remortgage if your LTV exceeds 90% to 95%. When you are in negative equity, your LTV is above 100%, which places you outside the criteria of virtually all standard mortgage products. A new lender would effectively be lending you more than the property is worth as security, which represents an unacceptable risk for most.

Even lenders who offer high-LTV products — up to 95% LTV — require that you have at least some equity in the property. The buffer of equity acts as protection for the lender in case they need to repossess and sell the home. Without this buffer, the lender could face a loss, which is why negative equity mortgages are so rare.

This does not mean you have zero options, but it does mean the standard route of shopping around for the best deal on the open market is unlikely to be available to you until your equity position improves.

Options Available to You

Product transfer with your existing lender: This is often the most accessible option for homeowners in negative equity. Because your current lender already holds the mortgage, they may be willing to move you to a new deal without requiring a new valuation. They already have the risk on their books, so a product transfer simply changes the rate rather than creating new risk. Contact your lender to ask what deals they can offer.

Negative equity mortgages: A very small number of specialist lenders offer mortgages designed for borrowers in negative equity, though these tend to come with higher rates and stricter terms. They are rare and not widely advertised, so a specialist mortgage broker is the best route to finding them. These products are more commonly associated with circumstances like relationship breakdown where one partner needs to take over the mortgage.

Government and lender schemes: In the past, schemes such as the government's Mortgage Rescue Scheme have been available to help homeowners in difficulty. While these are not always running, it is worth checking what support might be currently available through your lender, your local council, or organisations like the Money and Pensions Service.

Steps to Improve Your Equity Position

The most reliable way to escape negative equity is through a combination of mortgage repayments and property value recovery. Every regular payment you make reduces your mortgage balance, and if you can make overpayments, you will reduce it faster. Check your mortgage terms — most deals allow overpayments of up to 10% of the balance per year without penalty.

Making home improvements can also help by increasing your property's value. Focus on improvements that add genuine market value, such as a new kitchen, bathroom renovation, or adding usable space. Be cautious about overcapitalising — spending more on improvements than they add in value — and avoid borrowing more to fund the work when you are already in negative equity.

Time is also on your side. The UK property market has historically shown long-term price growth, even after periods of decline. While there is no guarantee of when prices will recover in your area, continuing to make your mortgage payments will steadily improve your equity position year by year.