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Remortgaging to a new lender with little or no equity and bad credit is usually difficult. Lenders want a cushion of equity, and many set lower maximum loan to value (LTV) limits for adverse credit, so low equity and a patchy credit file together can leave few options elsewhere. With no equity or negative equity, moving to a new lender is usually not possible.
With very low equity, the main route is often a product transfer with your current lender. Where you are not borrowing more, FCA rules allow lenders to switch existing customers to a new deal without a full affordability assessment. Your position can also improve over time, and this guide explains how.
What do low, no and negative equity mean?
Equity is the part of your home you own outright: its value minus everything secured on it. LTV is the other side of the same figure. With one mortgage and nothing else secured, LTV and equity always add up to 100%.
- Low equity has no official definition, but people often use it to mean an LTV of around 90% or above.
- No equity means you owe roughly what the home is worth, an LTV of about 100%.
- Negative equity means you owe more than the home is worth, an LTV above 100%.
The table below uses a home valued at £200,000. It is illustrative only, to show the maths, and does not reflect any lender’s limits.
| Total secured borrowing | LTV | Equity | Position |
|---|---|---|---|
| £150,000 | 75% | £50,000 | Moderate equity |
| £180,000 | 90% | £20,000 | Low equity |
| £190,000 | 95% | £10,000 | Very low equity |
| £200,000 | 100% | £0 | No equity |
| £210,000 | 105% | Minus £10,000 | Negative equity |
Include any second charge mortgage or other loans secured on the home in the total, as lenders commonly look at all secured borrowing. People can end up with little equity for several reasons: a small deposit, falling local prices, arrears added to the balance, an interest-only mortgage or earlier borrowing against the home.
Why low equity and adverse credit together narrow your options
When a lender considers someone with CCJs, defaults or missed payments, equity gives it a cushion if the property ever had to be sold. As a general pattern, many lenders:
- set lower maximum LTVs for adverse credit than for clean credit
- lower those limits further for more serious or more recent entries
- offer fewer products at higher LTVs, even for applicants with clean credit
Put together, the higher your LTV and the more recent your adverse credit, the fewer lenders may consider you. This is a general pattern rather than a fixed rule, and each lender sets its own limits. Our guide on how LTV affects a bad credit remortgage explains LTV bands in more detail.
With negative equity, moving to a new lender would usually mean paying off the shortfall first, as most lenders will not lend more than a property is worth.
Why a product transfer is often the main route
A product transfer is a new deal with your existing lender for the same amount. Under the FCA’s rules (MCOB 11.6.3R), where you are not borrowing more, your lender can switch you without a full affordability assessment. A like-for-like switch often does not need a new valuation either, so a fall in your home’s value may not stop you moving to a new deal.
A lender can still decide what it offers someone in arrears, and the deals available to you may depend on your circumstances. Ask your lender what it can offer well before your deal ends. Our guide to remortgaging with the same lender explains which checks to expect.
Why borrowing more is usually harder
Any extra borrowing pushes your LTV up, often into a band where fewer lenders operate, and a further advance usually involves a full affordability assessment. With negative equity there is usually no room to borrow more at all, and a second charge mortgage also usually needs some equity.
If you want to borrow to clear other debts, read about debt consolidation remortgages and our guide on whether to remortgage to pay off debt. The debts become secured on your home, and a longer term can mean paying more in total.
What can improve your position?
Overpayments, where your deal allows
Many deals allow some overpayment each year without an early repayment charge. Reducing your balance lowers your LTV and may move you into a lower band. Check your allowance first, and keep some savings for emergencies.
Time and regular repayments
On a repayment mortgage, each monthly payment reduces what you owe. Interest-only payments do not reduce the balance, so your equity only changes if prices do. Time helps your credit history too: most negative entries drop off your credit file after 6 years, and older ones often carry less weight.
A valuation that reflects improvements
If you have improved the home since you bought it, such as an extension or a new kitchen, make sure the lender or surveyor knows. Valuations are usually based on recent sales of similar homes, so improvements do not always add as much value as they cost. You can search sold prices for similar homes in England and Wales to get a realistic idea.
Reducing the amount you borrow
Using savings to pay down part of the balance when your deal ends, when early repayment charges often no longer apply, can bring your LTV under a band threshold. Paying any product fee up front, rather than adding it to the loan, also stops it pushing your balance up.
Property prices can rise or fall. You cannot control them, so it is safer not to rely on them.
What if your deal is ending and you cannot move?
If you do nothing when your fixed or tracker deal ends, your mortgage will usually move to your lender’s standard variable rate (SVR), which is usually higher. For someone who cannot remortgage elsewhere, drifting onto the SVR can be the most expensive outcome.
| Staying on the SVR | Product transfer with your lender | |
|---|---|---|
| Monthly cost | Usually higher | Often lower than the SVR, depending on the deal |
| Affordability assessment | None | Not required under FCA rules where you are not borrowing more |
| Early repayment charges | Often none | Usually apply if you leave during the deal |
| Flexibility | Often free to leave at any time | Tied in for the deal period |
| Fees | None to stay | A product fee may apply |
Many lenders let you arrange a product transfer a few months before your deal ends, often 3 to 6 months ahead. Compare the total cost over the deal, including any fee, rather than the monthly payment alone. A short spell on the SVR might suit someone who expects to sell soon, but compare the costs carefully first.
When to get free debt advice
Low equity on its own is not a debt problem. But if you are behind on your mortgage, if arrears have been added to your balance, or if you are thinking of borrowing more to cope with other debts, free advice is a sensible first step. MoneyHelper, StepChange and National Debtline can help you draw up a budget and talk to your lender.
Contact your lender early too. Lenders must treat struggling borrowers fairly and consider options such as a payment arrangement. Our pages on remortgaging with mortgage arrears and remortgaging with a low credit score cover related situations.
Frequently asked questions
Can I remortgage with negative equity?
Moving to a new lender is usually not possible with negative equity, as most lenders will not lend more than a property is worth. A product transfer with your current lender is often the main option, because where you are not borrowing more, FCA rules allow it without a full affordability assessment. See how LTV affects a bad credit remortgage.
How much equity do I need to remortgage with bad credit?
There is no single figure. Each lender sets its own maximum LTV, and it often depends on the type, amount and age of your adverse credit. As a general pattern, more equity tends to widen the choice of lenders. Your income and the rest of your credit file matter too. See what adverse credit is and remortgaging with a CCJ.
Can I get a product transfer with no equity?
It may be possible, depending on your lender. Where you are not borrowing more, lenders can switch existing customers without a full affordability assessment, and a like-for-like switch often does not need a new valuation. A lender can still decide what it offers someone in arrears. See remortgaging with the same lender.
Will overpaying my mortgage help me remortgage?
It can. Overpaying lowers your balance and your LTV, which may move you into a lower band and widen your options. Many deals allow some overpayment each year without a charge, but limits vary, so check your terms first. Keep enough savings for emergencies, as money paid into your mortgage is not easy to get back. Our calculator can help with the numbers.
Can I borrow more if I have little equity?
It is usually harder. Extra borrowing raises your LTV, and a further advance normally involves a full affordability assessment. With adverse credit, fewer lenders may consider higher LTVs. If you want to borrow to clear debts, those debts become secured on your home. See debt consolidation remortgages and consider free debt advice first.