People often find themselves in negative equity due to falling house prices. When prices fall, the number of households in negative equity tends to rise. It’s a bigger problem during recessions, when house prices can experience bigger drops.
For example, house prices fell by around 20% between 2007 and 2009, during the global financial crisis. This meant that almost 1 in 10 people who held mortgages in the UK were in negative equity by spring 2009.
Negative equity example
Bill bought a house worth £180,000. He did this with a £20,000 deposit and a mortgage of £160,000.
After two years of living in the property, he’d paid off £10,000 of his mortgage.
He got his house valued again – and found that it was now worth £100,000.
This valuation put him in negative equity of £50,000. He still owes £150,000 of his mortgage on a house that’s now worth £100,000.