Negative equity is back – is this the real reason you can’t sell your house?

The term “negative equity” is from Britain’s dark economic past. But with nearly 15 per cent of London homeowners now selling at a loss, is it poised to make a comeback?

That striking figure, gleaned from an analysis of Land Registry data by estate agent Hamptons, is twice the national average of 8.7 per cent in 2025. During that year, the capital overtook the North East, which was the region in which homeowners were most likely to sell at a loss in nine of the past 10 years.

At local authority level, eight of the 10 worst loss-making boroughs for homeowners were also in the capital. A staggering 28.2 per cent of sellers in Tower Hamlets sold at a loss. It wasn’t much better in the City of London (26.2 per cent), Kensington & Chelsea (22.4 per cent), Westminster (22.1 per cent) or Hammersmith & Fulham (20.8 per cent).

As that list makes clear, there are some fancy – and pricey – boroughs here, places where it can already feel as though you need a banker’s bonus just to get your foot in the door of the local estate agent’s office.

While the majority of sellers still made money, it is worth noting that half of those who sold homes in London last year had owned them for more than a decade. They thus benefited from rising prices over time. In cash terms, these long-term owners accounted for 77 per cent of the total gains made in the capital.

Sellers in the south of England (the South East, South West and East of England) were also among the most likely to sell for less than they’d paid. The North fared better, chiefly because prices have been growing faster from a lower base in recent years.

London’s once red-hot property market used to be seen as a one-way bet. That’s no longer the case, says Aneisha Beveridge, Hamptons’ head of research. “In some cases, even owners who bought a decade ago still face getting back less than they paid – something that would have been almost unthinkable in the heady days of 2015,” she explains.

Selling at a loss, however, is not the same thing as being trapped in negative equity. That is when people find themselves not just underwater in terms of what they paid, but living in a home worth less than the value of an outstanding mortgage.

The latter was a major problem in the early 1990s, when the economy took a bath, with interest rates peaking at 15 per cent and unemployment approaching 3 million (10 per cent of the working population). That figure is even worse than during the Covid pandemic. Today’s economic torpor, while unpleasant, looks more like a mild head cold when compared with the killer bird flu that prevailed before the turn of the century.

Still, that doesn’t mean London’s loss-making property market – or a loss-making market more widely – isn’t a problem. It gums things up, and not just when it comes to property transactions.

Remember last year’s talk about job-huggers? People sticking with roles they hate because of the chill in the labour market? Perhaps 2026 will be the year of the home-hugger. The two are closely connected. If you’re hugging your home, you may well have to hug your job, too. If you can’t move house, it becomes much harder to change role.

I suspect this issue is going to be with us for some time, given the affordability problem afflicting the London market. Nationwide Building Society put the average price of a home in the capital at £529,372 last year – more than half a million quid.

To get a 95 per cent loan to buy such a pad as a first-time buyer – and it’s this cohort that’s propping up the market right now – would require a deposit of £26,468 and a lender prepared to advance just over half a million (£502,904).

Lenders will now advance prospective homebuyers up to six times their income – a figure that looks like a financial horror movie to me, given you were doing well to get three and a half times what you earned in the dim and distant past when I bought. Nationwide has such a product. So do many others.

Home loans also stretch far beyond the previous standard of 25 years. Now it’s up to 40, which potentially means people repaying their mortgage well into their retirement.

The average London home would still require an income of £83,817, with no other outstanding debt, to borrow at six times income. That works for those in banking, the law, perhaps accountancy, asset management, tech, or the richer parts of the insurance industry. It is far less feasible for everyone else.

With affordability so stretched, there is little room for growth, even with interest rates falling. Forecasters predict low – or even no – growth in the capital this year. So those unlucky enough to find themselves in the red compared with what they paid may have to resign themselves to hugging their home for some time. Good news, perhaps, for those specialising in upgrading properties rather than flogging them.

Again, the only real cure for this malaise is to build more homes. That is hard to do in London, and it ultimately requires building higher – a prospect that inevitably produces howls of protest from those living near new developments.

And did I mention that flats are much less popular than houses? I should have. One in five of them (19.9 per cent) was sold at a loss in England and Wales, compared with just 4.5 per cent of houses.

Nobody said fixing these problems was going to be easy. The nationwide shortage of homes is as bad as it is largely because the issue has been ignored for so long. That needs to change. In the meantime, best get used to hugging, London.