The return of negative equity

As the papers turn bearish on the housing market, the phrase 'negative equity' is being used for the first time since the 1990s. But who is most at risk, and what are the consequences?

The papers are full of doom and gloom about the housing market and the property sections are suddenly starting to include the dreaded phrase "negative equity" for the first time since the early 1990s. But what is "negative equity" and why is it such a problem?

In short, if your house is currently worth less than your outstanding mortgage balance then you are in negative equity. Say you bought a house for £250,000 six months ago using a 100% "interest-only" mortgage, so your repayments only cover the mortgage interest each month rather than reducing the original loan. If today the market value of the house has dropped to £245,000 then you are in negative equity to the tune of £5,000 (the property is worth £5,000 less than the loan that finances it).

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Ruth Jackson-Kirby

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings accounts and credit cards to pensions, property and pet insurance.

Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.

Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping, among many other titles both online and offline.