Moving with negative equity
Moving house with negative equity is a significant hurdle for homeowners who need to sell up, because the sale can lead to a substantial mortgage shortfall. The only watertight way to sell a home with negative equity is by having enough savings to bridge the financial gap. This may sound daunting but the majority of negative equity cases (two-thirds) are currently only facing shortfalls of around 10%.
If you are thinking of moving with negative equity, a handful of lenders will allow you to “port” your mortgage to a new property. Lloyds TSB and Halifax allow porting, provided that you do not require additional borrowing. (correct as at 2009)
A new 125 per cent mortgage from Nationwide (july 2009) is available to existing borrowers who want to move house, but who are in negative equity on their current home. Under the terms of the deal, customers will be allowed to borrow up to 95 per cent of the value of their new home, while putting down a 5 per cent deposit. They will then be allowed to add on up to another 30 per cent of the value of their new property in negative equity from their old home.
Another option could be to move and rent your property to cover the mortgage payments. However, speak to your lender before considering this. Provided you demonstrate clearly to your mortgage lender that you are not letting your home for commercial gain, it may agree to "consent to lease". This means you could stay on a residential mortgage rather than being transferred to a more expensive buy-to-let deal. Similarly, if downsizing is an option, you will need permission from your lender if you want to sell your home.