What Is Negative Equity? A Guide for Kiwi Homeowners

easySale

22 Oct 2026 — 10 min read

Negative equity means you owe more on your home loan than your home is currently worth. If your house would sell for $600,000 and your mortgage balance is $640,000, you are $40,000 in negative equity. On paper you are behind. In practice, whether it hurts you depends almost entirely on one question: do you need to sell?

This guide explains how negative equity works in New Zealand, how to check where you stand, what it does and does not affect, and what your realistic options are if you are under pressure to sell.

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TL;DR

Negative equity is when your mortgage balance is higher than your property’s market value. Kiwibank adds that the comparison should allow for the costs of selling.
If you keep up your repayments and don’t need to sell, it is a paper loss. ASB says it does not affect your credit score as long as you keep to your scheduled repayments.
If you sell for less than you owe, you are still personally liable for the shortfall to the bank.
Talk to your lender early. Don’t wait until you miss a payment.
If you must sell, compare every route and the real net figures before you commit.

What negative equity means
How people end up in negative equity
How common is it in New Zealand?
How to check whether you have negative equity
What negative equity does and doesn’t change
When negative equity becomes a real problem
Your options if you are in negative equity
Questions to ask before you decide to sell
Our perspective: what we see when equity runs thin
If you need to sell, here is how we can help
FAQ
Sources

What negative equity means

Equity is the difference between what your home is worth and what you owe on it. ASB describes home equity in exactly those terms, and notes that it normally grows over time as you pay down the loan and as prices rise.

Negative equity is the reverse. Your loan balance is bigger than the value of the property. You might hear it called being “underwater” on your mortgage.

Two details matter:

Value means market value, not rateable value or what you paid. A registered valuation or a recent comparable sale is a better guide than a website estimate.
Selling costs count. Kiwibank’s definition is that you owe more than the property could sell for after deducting the costs of selling. A house valued at $600,000 will not put $600,000 in your account after agent fees, legal fees and any early repayment costs.

A simple worked example

This is an illustration, not a real case.

Item	Amount
Mortgage balance	$640,000
Current market value	$600,000
Equity (value minus loan)	-$40,000

That -$40,000 is before you pay anything to sell. Add agent commission, legal costs and any lender fees, and the gap you would need to fund from savings is wider than $40,000. If you do not need to sell, none of that is crystallised. If you do, it becomes real money you owe.

How people end up in negative equity

The usual cause is a fall in house prices. It is more likely when the starting deposit was small.

The Reserve Bank has noted that the risk is highest for borrowers who bought with high loan-to-value ratios, in other words small deposits, when prices were high. RNZ reported in November 2022 that people who bought in 2021, when rates were low and prices high, were the ones most exposed if values dropped.

Other routes in:

Damage. A flood, slip, fire or an unrepaired defect can cut value while the loan stays the same. Kiwibank notes that some people have experienced negative equity from unforeseen natural events.
Borrowing against the home. Topping up a loan for renovations or other spending can push the balance above what the market will pay.
Interest-only periods. If you aren’t paying down the principal, you aren’t building equity to cushion a price fall.
Poor condition. Deferred maintenance, leaky-building issues or unconsented work can lower what a buyer will pay.

Banks try to limit the risk. Government housing guidance says banks will generally lend up to 90 to 95 per cent of value on standalone homes and townhouses, but only up to 80 per cent for apartments, partly because they are conscious of the risk of customers going into negative equity.

How common is it in New Zealand?

The figure moves with the market, so treat any single number as a snapshot. ASB’s guidance cites that in November 2022 around 2 per cent of New Zealand mortgage holders were in negative equity. That is a small share, but for those households it was a serious problem if they had to sell.

Your own situation depends on when you bought, how much you put down and what has happened to prices in your suburb. National averages hide big local differences.

How to check whether you have negative equity

Find your loan balance. Check your latest statement or internet banking. Use the total across all loans and any revolving credit or overdraft secured on the property.
Estimate your market value. Use recent sales of similar homes nearby, an online estimate as a rough guide only, or a registered valuer for a firm number.
Subtract the loan from the value. A negative result means negative equity.
Allow for selling costs. Estimate agent fees, legal fees and any lender charges. If you are close to zero, these can tip you under.
Ask your bank. Your lender will have its own valuation view, and that is the one that counts when you ask to borrow more or refinance.

If your home is damaged, get an honest picture of its as-is value. A figure based on the house in perfect order will mislead you.

What negative equity does and doesn’t change

This is where a lot of worry is wasted. If you keep making your repayments:

Your loan contract stays the same.
Your interest rate does not change because of the valuation drop.
ASB says your credit score is not affected as long as you keep to your scheduled repayments.

What it does limit:

Borrowing more. Banks generally won’t lend extra against a property in negative equity. ASB notes that in some cases, such as urgent repairs after extreme weather, a lender may still consider helping if you contact it directly.
Switching lenders. A new lender will want to see enough equity under its own lending rules, so moving your loan can be harder.
Selling. This is the big one. If sale proceeds won’t clear the loan, you need to find the difference.

The Reserve Bank’s guidance and ASB’s both point in the same direction: negative equity is largely a paper loss if you can keep paying and don’t have to sell. Markets move in cycles, and the costly mistake is selling in a panic during a downturn, which turns a temporary valuation change into a permanent loss.

It can also help to remember the bigger picture. The Reserve Bank says housing equity makes up about 55 per cent of household net wealth, which is why a price fall can make people feel poorer and act rashly. A falling market is not a personal failing.

When negative equity becomes a real problem

It bites when something forces you to sell or stop paying:

A relationship breakdown where two households need to be funded from one asset.
Job loss, illness or a drop in income.
A job move or family need to relocate.
A tenant-damaged rental you can’t afford to repair.
An inherited property where the estate owes more than the house is worth.
A mortgage refix at a much higher rate that stretches your budget.

In each case the question is no longer “what is my house worth on paper” but “what will I walk away owing?”

The shortfall is still yours

Many people assume they can hand back the keys and be done. That is not how it works. If you sell for less than your total debt, you remain liable for the remaining balance. The Banking Ombudsman’s guide to mortgagee sales explains that if the debt is not repaid, the bank can pursue recovery, which can ultimately lead to bankruptcy.

Home sale proceeds leave mortgage debt unpaid

While the property is still yours, you also carry holding costs such as rates, insurance and maintenance until settlement.

Why a mortgagee sale is the outcome to avoid

If you default and the bank sells, the proceeds go first to the bank’s costs. The Banking Ombudsman lists valuation, agent and legal costs among them, and only then is the remainder applied to your debt. In negative equity, that leaves little chance of any surplus.

If you have an investment property and your home with the same bank, the Ombudsman also warns the bank could move to sell both if you default on either. Our guide to ways to avoid foreclosure covers the steps to take before it gets that far.

Your options if you are in negative equity

1. Stay put and keep paying

If you can afford the repayments, this is usually the lowest-risk path. Prices recover in many cycles, and you build equity through every principal payment. You don’t need to do anything about the valuation itself.

2. Talk to your lender before you miss a payment

Consumer NZ’s advice is to contact your lender early rather than wait until you fall behind. Lenders have hardship options such as temporary interest-only periods or a longer loan term, designed to get customers through events like illness or sudden loss of income without forcing a sale. You don’t have to be wealthy or in arrears to ask.

3. Get free, independent advice

A budgeting service, a lawyer or the Banking Ombudsman can help you understand your rights, particularly if you are already behind. If you are dealing with a serious illness, Sorted’s guide on managing money after a diagnosis covers refinancing and other choices. Note that refinancing is harder when you have no equity.

4. Sell and fund the shortfall

If staying is not viable, a sale may still be the right call. You would need to cover the difference between the sale price and the debt, plus costs, from savings, family support or a negotiated arrangement with your bank. Talk to your lender before listing. Our article on selling a house with a mortgage walks through the steps and the lender’s role.

5. Sell as-is to avoid costs that widen the gap

In negative equity, every dollar spent on repairs, staging and commission is a dollar added to the shortfall. If the home is damaged, tenanted or needs work you can’t fund, a direct sale that needs no repairs and no agent can keep the final numbers more predictable. Compare it fairly against a normal listing, using net figures after all costs, not headline prices.

Questions to ask before you decide to sell

What is the exact payout figure on my mortgage, including any break fees if I’m on a fixed term?
What would I net after agent, legal and other costs at a realistic price?
Will my lender agree to a sale if it doesn’t clear the debt in full, and on what terms?
Can I afford to hold on for 12 to 24 months with a hardship arrangement in place?
If the house is damaged, what is its as-is value, and what would repairs cost?
Who else is on the loan or title, and do they have to agree?

Write the answers down. If the figures show you can wait, waiting often costs less than selling. If they show the pressure is building, acting early gives you more choice than acting late.

Our perspective: what we see when equity runs thin

We talk with homeowners who feel stuck. The pattern is rarely about the number itself. It is about being forced to move on someone else’s timeline, whether that is a separation, an estate to settle, a damaged rental or a move for work.

Our view is simple. First, don’t sell in a panic if you can safely wait, because a valuation dip is not a loss until you sell. Second, if you cannot wait, get facts before you get offers: your payout figure, your realistic value and your selling costs. Third, be wary of any route that adds fees or repair bills to a sale where the margin is already thin.

A private sale without agent commission or repairs will not erase a mortgage shortfall. If the debt exceeds the price, that gap still has to be dealt with, ideally with your lender’s agreement. What it can do is remove avoidable costs and give you a settlement date that fits your circumstances. We would rather tell you that plainly than promise something no buyer can deliver.

— Aaron

If you need to sell, here is how we can help

EasySale introduces New Zealand homeowners to cash buyers who purchase properties in any condition, including damaged, unconsented, tenanted or inherited homes. There are no agent fees or commission, no repairs required, and settlement can be on a timeline that suits you. We keep the process private and respectful.

Because we do not publish prices, we won’t quote figures here. What we can say is that offers are no-obligation, so you can compare the numbers against your payout figure before deciding.

If your situation is urgent, see how selling fast within 7 days works. If the property is run-down, our damaged and as-is page explains what we can take on. For separations, estates and moves, we have dedicated pages for divorce or separation and inherited or deceased estates. You can also start from the EasySale home page.

If you are in financial difficulty more broadly, our guide to selling property in financial distress sets out what to do and in what order.

FAQ

What does negative equity mean?

It means your home loan balance is higher than your home’s market value. If your property would sell for less than you owe, you have negative equity. Selling costs make the real gap larger than the simple difference.

What happens if I’m in negative equity and can’t sell?

Nothing changes while you keep up your repayments. Your loan terms and, according to ASB, your credit score stay the same. The practical limits are that you will find it hard to borrow more or switch lenders until values recover or you pay down the loan.

How do I know if I have negative equity?

Subtract your current loan balance from your home’s realistic market value, then allow for the costs of selling. If the result is below zero, you are in negative equity. A registered valuation or your bank’s own figure gives the most reliable answer.

Can I walk away from my mortgage if I’m in negative equity?

No. If the sale price does not cover the debt, you remain personally liable for the shortfall, as the Banking Ombudsman explains. Speak to your lender and an independent adviser early, before you miss payments or list the property.