What should I do if I owe more on my mortgage than my home is worth?

Owing more than your home is worth is known as negative equity. It means the amount needed to repay the mortgage and any other secured borrowing is greater than the property’s realistic sale proceeds after relevant selling costs. The difference is called a shortfall, and it must be addressed before the lender can release its charge over the property.

Start by establishing the exact figures rather than relying on an online valuation or the mortgage balance shown on a recent statement. Request a current redemption statement from your lender and check whether it includes:

• the outstanding mortgage balance and daily interest;
• any early repayment charge or exit administration fee;
• arrears, legal fees or other charges added to the account;
• loans secured against the property, including a second charge; and
• the date on which the quoted repayment figure expires.

You should then obtain a realistic assessment of the property’s likely sale price and deduct estate agency, conveyancing, removal and other transaction costs. A property can appear to be worth slightly more than the mortgage balance but still produce a shortfall once these costs are included.

There are several possible routes, depending on your finances and why you need to sell:

• Remain in the property: If you can maintain the mortgage, staying put may allow the balance to reduce over time or the property value to recover. This does not remove the risk of further interest, arrears or changes in affordability.
• Ask about mortgage portability: If you are moving to another property, your lender may consider transferring the mortgage rather than requiring it to be repaid from the sale. Porting is not automatic; the new property, borrowing level and your affordability will normally be assessed, and it may not cover any negative equity.
• Agree a sale with lender approval: A lender may consider allowing a sale for less than the redemption figure if there is a documented plan for the remaining debt. Do not assume that a sale price has been accepted until the lender confirms its position in writing.
• Use other funds: Savings or a legally documented contribution from another source may cover all or part of the shortfall. Taking additional borrowing to do this requires careful affordability checks, as it can replace one secured liability with another debt.
• Consider a cash purchaser: A cash buyer can provide another route to compare when a conventional sale is unsuitable, but the offer still needs to be measured against the redemption figure, selling costs and any lender conditions. A fast transaction does not by itself remove the shortfall.

If the lender agrees to accept less than the full amount, clarify what happens to the balance. It may remain payable as an unsecured debt, be converted into a separate repayment arrangement, or be dealt with under terms set out in a settlement agreement. Obtain written confirmation of the amount outstanding, the repayment schedule, interest, and whether the lender will regard the account as fully settled after the agreed payments.

Do not exchange contracts until your solicitor or conveyancer has checked that the sale proceeds and the agreed funding are sufficient to complete. On completion, the solicitor normally uses the proceeds to repay secured borrowing and transfer the title. If the available funds are inadequate and no lender agreement is in place, completion may be delayed or impossible.

Negative equity can become more urgent if mortgage payments are already in arrears or repossession proceedings have started. Contact a free, impartial debt advice service, a solicitor or a regulated mortgage adviser for advice tailored to your circumstances. They can help assess the effect of unsecured shortfall debt, other creditors, joint borrowing and any proposed insolvency solution. Bankruptcy or an individual voluntary arrangement can have significant consequences and should not be chosen solely to make a property sale possible.

Where the mortgage is held jointly, both borrowers should establish their position before agreeing to a sale. Relationship breakdown or a transfer of ownership does not automatically remove either borrower’s liability to the lender. The lender may continue to pursue both parties unless it formally agrees to a different arrangement.

The practical next step is to compare three documents: the lender’s redemption statement, an evidence-based estimate of net sale proceeds, and a written plan for any remaining balance. That comparison shows whether selling is viable, whether retaining the property is safer, or whether specialist debt advice is needed before taking action.