Negative equity occurs when your mortgage balance exceeds the property's current market value. More common than many realise, particularly among those who bought at peak prices with small deposits.\n\nHow It Happens — House prices fall. You bought with 5% deposit and even a modest drop puts you underwater. You added fees to the mortgage, starting above 100% LTV. Interest-only mortgage where the balance has not reduced.\n\nWhy It Matters — It does not affect daily life if you stay and keep up payments. The problem arises when you need to move — selling means proceeds do not cover the mortgage. Remortgaging is difficult above 100% LTV.\n\nOption 1: Stay Put — If you can afford payments and do not need to move, time is your friend. Prices have historically recovered from every downturn. Continue paying (overpay if possible) while waiting for recovery.\n\nOption 2: Negative Equity Mortgage — A small number of lenders offer products that transfer negative equity into a new mortgage. Criteria are strict: clear affordability, good payment history, reasonable new purchase.\n\nOption 3: Shortfall Agreement — If you must sell, negotiate with your lender. Some allow managed sales where you repay the shortfall over time through an unsecured arrangement, avoiding repossession.\n\nOption 4: Overpay Aggressively — On a 200,000 mortgage with 5,000 of negative equity, overpaying 200 per month eliminates it within roughly two years.\n\nAvoiding It — Buy with the largest deposit you can. Avoid adding fees to the loan. Choose repayment over interest-only. Do not overpay for a property based on emotion.