Yes, it is possible to sell a house that is in negative equity, but please remember that you will have to find the money from savings or borrowing to pay off the mortgage balance – even if the sale price is below the outstanding mortgage sum.
Often, taking out an equity release loan can result in a negative equity situation, and sadly, it is easy to become an equity release horror story.
If your income has increased substantially or you are downsizing in a chain to a smaller property, then it is possible to take out a smaller mortgage that pays off your negative equity.
Alternatively, you can always ask family, friends or the Bank of Mum and Dad to borrow funds.
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What is negative equity?
The term negative equity is where the value of property is less than the outstanding sum. For example, let’s say that you have a mortgage on your house, and the value of your home falls below the outstanding mortgage sum, then you are in a negative equity.
Normally, you can grow out of a negative equity situation if you don’t need to sell or refinance for the next 20 years or longer because inflation over time erodes away the value of debt.
Negative equity means that your home is worth less than the amount you owe on your mortgage. For example, if your property is valued at £150,000 but your mortgage balance is £170,000, you have negative equity of £20,000. This situation can be particularly concerning if you need to sell your home, as the sale proceeds will not cover the outstanding mortgage debt.
Everyone’s situation is different, but if you can afford to start paying off your mortgage – even if it’s an extra £100 per month, over time, you will notice that your outstanding sum will be reduced substantially – as you will pay off the capital amount and reducing the interest paid on outstanding debt.
How do you get rid of negative equity in a house?
- If you can stay put and pay off your mortgage slowly while waiting for the market to recover.
- Reduce your mortgage by paying off in small overpayments.
- If the lender allows you to sell, then agree on a payment plan with them. However, they are unlikely to move from a secured loan to an unsecured one.
- Allow your home to be repossessed. This isn’t recommended as your financial status will be ruined.
- Home Improvements: Increasing the value of your home through renovations can help reduce negative equity. However, ensure that the cost of improvements does not outweigh the potential increase in property value.
- Seek a Negative Equity Mortgage: Some lenders offer negative equity mortgages, allowing you to transfer the shortfall to a new property. These products are rare and often come with higher interest rates and fees.
Can I roll negative equity into a new mortgage?
Lenders do not allow negative equity to be transferred to a new mortgage. However, some specialised products may enable this under specific circumstances, often with higher costs.
What if my lender doesn’t allow me to sell?
If your lender refuses permission to sell, you may need to explore other options such as renting out the property or making mortgage overpayments to improve your equity position.
What happens if my house sells for less than my mortgage?
You won’t be able to sell your house for less than the amount owed on the mortgage balance. If your bank approves, you will need to agree on a payment plan to pay off the remaining balance following the sale of the property.
Selling a House in Negative Equity
If you decide to sell your house while in negative equity, here are the steps you should consider:
- Get Permission from Your Lender: Selling a property in negative equity usually requires lender approval, as it involves repaying less than the outstanding mortgage.
- Cover the Shortfall: You will need to find a way to cover the difference between the sale price and the mortgage balance. This could involve using savings, borrowing from family, or taking out a personal loan.
How to sell a house with negative equity?
You can only sell a house with negative equity if you are able to pay off the mortgage in full. Otherwise, you may have to wait for a long time until property prices start to increase again.
What happens if you sell a house with negative equity?
Selling a house with negative equity means you will have to fund the difference between the outstanding balance and the resale price.
To sell the property, you will need to appoint a great estate agent and incentivise them to sell your home quickly – at the best possible price. Once a buyer is found and an offer has been accepted, you will need to request a redemption statement from your mortgage lender. This statement will show the outstanding balance of your mortgage, as well as any fees or charges that are due.
If the sale price of the house is not enough to cover the outstanding mortgage balance and fees, you will need to come up with additional funds in order to pay off the mortgage. This money can come from your savings, or you may need to borrow it from family or take out a personal loan if your financial circumstances allow.
Once you have the necessary funds, you will need to send them to your solicitor, who will use them to pay off the mortgage and complete the sale of the property. It is important to keep in mind that selling a house with negative equity can be a complex process, and you may wish to seek the advice of a financial advisor or legal professional to help you navigate the process and make the best decisions for your situation.
What can you do about negative equity?
Start paying off your mortgage even small increments of an additional £100 per month can help shave off tens of thousands of pounds in additional interest payments. You can overpay your mortgage by:
- Having a clear out in your house, selling items that you no longer need or use on eBay and Facebook marketplace;
- Taking on a part-time job in your local supermarket or delivering food for Uber or Eat;
- Becoming a Viewber to show properties on behalf of estate agents;
- Gaining qualification to become an Energy Performance Assessor. Commercial property EPCs can cost upwards of £200 each;
- Starting a side hustle, such as selling items on eBay or Amazon.
Can Property Saviour Help?
We understand that selling a negative equity property can be a distressing experience, and therefore, we offer you an alternative to an estate agent.
We will buy your property for cash. Whether it is a second home, inherited property or a buy-to-let investment, it doesn’t matter. We’ll do our best to complete the purchase within 10 working days and pay £1,500 towards to your legal fees. Why not get in touch with us today to see how we can help?
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Property Saviour Price Promise
- The price we’ll offer is the price that you will receive with no hidden deductions.
- Be careful with ‘cash buyers’ who require a valuation needed for a mortgage or bridging loan.
- These valuations or surveys result in delays and price reductions later on.
- We are cash buyers. There are no surveys.
- We always provide proof of funds with every formal offer issued.
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- No long exclusivity agreement to sign because we are the buyers.
- You are welcome to use your own solicitor.
- If you don’t have one, we can ask our solicitors for recommendations.
- We share our solicitor’s details and issue a Memorandum of Sale.
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- Our approach is transparent and ethical, which is why sellers trust us.
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- If you have another buyer, you can put us in a contracts race to see who completes first.
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