Help to Buy and Negative Equity — What Happens if Your Property Value Falls

Help to Buy and Negative Equity — Understanding Your Risk

The Help to Buy equity loan was designed to make homeownership more accessible. One of its structural features is that repayment is calculated on current market value rather than the original purchase price. This has an important implication: if your property value falls, the cash amount you owe the government under the equity loan also falls. But falling values create separate and potentially serious problems for the conventional mortgage that sits alongside the equity loan.

How the Equity Loan Responds to Falling Values

Because the equity loan is a percentage of market value, a fall in your property's value directly reduces the equity loan repayment figure. If you originally borrowed 20% of a £250,000 property (£50,000), and the property is now worth £200,000, your equity loan repayment would be 20% of £200,000 = £40,000 — £10,000 less than you originally borrowed.

In this sense, the government shares in the loss, just as it shares in the gain when values rise. The loan is genuinely equity-linked in both directions.

The Real Problem: Your Conventional Mortgage

While the equity loan adjusts with market value, your conventional mortgage does not. If you took a repayment mortgage of £187,500 on a £250,000 purchase (75% LTV), and your home falls in value to £200,000, your mortgage balance (after a few years of repayments) may still exceed the value of the property once the equity loan charge is considered. This is where negative equity becomes a real concern.

In negative equity, your total secured debt (conventional mortgage plus equity loan repayment obligation) exceeds the current market value of your home. You cannot sell without bringing additional cash to the table to clear the shortfall, and remortgaging to a better rate becomes extremely difficult or impossible because no lender will lend above 100% LTV.

Can You Simply Stay Put?

If you are not planning to sell or remortgage, negative equity does not immediately affect your day-to-day life. Your mortgage payments continue as normal, management fees continue to accrue from year six, and the equity loan charge remains in place. Time — and recovery in property values — can resolve the position without any action on your part.

However, staying put means:

• Your management fees continue to rise annually
• You cannot easily move home
• You are exposed to further value falls
• A change in personal circumstances (job loss, divorce, bereavement) can make the situation acute

What Happens If You Need to Sell in Negative Equity?

If you must sell in negative equity, you will need your mortgage lender's agreement to a shortfall sale. This is a complex and stressful process. The equity loan element may actually be smaller than expected (because it tracks market value), but if your conventional mortgage balance exceeds the net sale proceeds after paying the equity loan, you will owe your lender the difference.

Contact your lender and Target HCA as early as possible if you are in financial difficulty and facing a potential forced sale. Both parties would generally prefer a managed outcome to a repossession.

Seeking Professional Advice

If you are in or approaching negative equity on a Help to Buy property, speak to:

• A qualified mortgage broker with Help to Buy experience
• A debt advice charity such as StepChange or Citizens Advice
• Your mortgage lender's hardship team

Do not ignore the situation. Early engagement gives you more options.

Use our [Help to Buy calculator](/help-to-buy-calculator) to understand how your equity loan figure changes at different property values and to see the total picture of your secured obligations relative to your home's current worth.

Key Points

• The equity loan repayment falls if property values fall — the government shares in losses as well as gains
• The greater risk is negative equity on your conventional mortgage, which does not adjust with market value
• If not planning to sell, you can remain in place while values recover
• Forced sales in negative equity require lender agreement and may leave a shortfall
• Seek advice early if you are in financial difficulty — do not wait until crisis point