A Complete Guide to Negative Equity — Causes, Risks, Impacts + Practical Responses

With Hong Kong property prices swinging in recent years, many prospective buyers wonder whether now is a risky time to buy (“get on the ladder”), and existing mortgagors worry that a market pullback could push them into negative equity. Negative equity is more than just falling prices—it can also affect your mortgage flexibility, credit profile, and future financial choices. This article explains the definition, causes, impacts, and actionable strategies for negative equity. It also shows you how to use “Intelligent Financial Health Analysis¹” to check your TransUnion credit score for free, anytime, so you can monitor your finances and manage risks with ease.

Latest Numbers on Negative Equity

On 31 Oct 2025, the Hong Kong Monetary Authority reported 31,449 residential mortgage cases in negative equity as at endQ3 2025², a 23% drop from 40,741 cases at endQ1 2025. Q3 2025², a 23% drop from 40,741 cases at end Q1 2025.

What Is Negative Equity?

Negative equity occurs when your total assets worth less than your total liabilities, resulting in a negative net worth.

Example: You purchased a property valued at HK$10 million with a 90% LTV mortgage, i.e., a HK$9 million loan. If the property value falls to HK$8 million, you are in negative equity, still owing HK$1 million more than the asset value. The risk is more pronounced for high-LTV borrowers.

Key Causes of Negative Equity

1. Significant Drop in Property Prices

Market volatility is the leading cause of negative equity. If property prices fall by a percentage greater than your down payment, you are at high risk. For example, if you have a 90% mortgage (meaning you borrowed 90% of the value), a price drop of more than 10% will likely push you into negative equity.

2. High LTV Risks

Using an 85% or 95% mortgage helps you enter the market faster with a smaller down payment. However, because of the high leverage and small safety net, any price drop can quickly lead to negative equity. In this scenario, you may still be able to afford the monthly payments, but your home’s value will be less than your total debt.

3. Unstable Macro Environment

Rising unemployment, rate adjustments, or weaker growth depress demand, pulling prices down and raising the chance of negative equity.

4. Buying at Market Peaks

If you rush to buy when home prices are at their peak without assessing your risks, a market downturn will have a much greater impact. This significantly increases your risk of falling into negative equity compared to buying at other times.

How Negative Equity Affects You

• Higher Financial Stress: Larger monthly repayments squeeze living standards and may impair your ability to service other debts.
• Call-Loan Risk: If your mortgage contract includes a "Call Loan" clause and you fall behind on payments for over 60 days during a market downturn, banks will question your financial stability and place you on a watchlist. If payments are missed for more than 6 months³, the bank may trigger a Call Loan, demanding immediate full repayment or seizing the property for auction. Loan Risk
• Damaged Credit Records: Late payments are recorded in your Personal Credit Report, which can hinder future credit card applications, loans, or even job prospects. Poor repayment history will further lower your credit score
• Harder to Access Credit: Negative equity significantly reduces the chance of refinancing or top up, and even qualifying for another mortgage later (“get approved again”) becomes harder—shrinking your financial flexibility.

Will Banks Call the Loan If I’m in Negative Equity?

Banks rarely trigger a "Call Loan" solely due to negative equity. There are several reasons for this: even if a bank repossesses a property, the borrower’s inability to repay the remaining balance means the sale might not cover the full loan amount. Furthermore, the process of repossessing and auctioning a property requires significant time and resources, so banks generally avoid taking such drastic action.

Additionally, many high-LTV mortgages are backed by mortgage insurance, which helps diversify and offset the bank’s risk. Under current mortgage frameworks, banks are unlikely to face actual financial losses unless property prices drop by more than 30%. Therefore, as long as you continue to make your payments on time, banks will typically not issue a Call Loan, even if you are in a negative equity position.

However, banks may call the loan in cases such as:

• Illegal Activity: If your account shows suspicious transactions (like money laundering) or huge cash movements you can't explain, the bank may close your account and demand full repayment (Call Loan) to protect itself.
• Unauthorized Renting: By law, high-LTV mortgages (over 70%) are for living in only. If you rent out your home without the bank's written permission and get caught, they can force you to pay back the entire loan immediately.
• Long-term Default: Banks won't "Call Loan" just because you are a few days late. However, if you stop paying for more than 6 months due to job loss or money trouble, the bank will likely step in to take the house.
• Second Mortgages: Avoid seeking additional financing from private lenders, as this often triggers an alert to your lead bank. If the bank determines your debt-to-income ratio is now too high, they may demand full repayment of your mortgage. Consult your original lender before applying for any secondary financing.

How to Respond to Negative Equity

• Engage Your Bank Early: Discuss options such as tenor extension, interest only periods, or restructuring, and clarify the call loan handling process.
• Boost Income / Cut Expenses: Add side income (part time/freelance) and trim non essentials to stabilise cash flow.
• Check Your Credit Regularly: Use “Intelligent Financial Health Analysis¹” to monitor your report; if errors are found, promptly dispute with TransUnion.
• Improve Your Score: Pay on time, keep utilisation low, avoid excessive borrowing—this raises your score and improves your bank’s willingness to cooperate.
• Consider Refinance / Top-up: Where feasible, lower the payment burden or lengthen the term. up
• Deleverage via Asset Sales: Dispose of non-core assets to raise cash and reduce pressure.
• Seek Professional Help: For severe cases, consult advisors on IVA / DRP to negotiate structured repayment with creditors.

💡 Pre purchase Tip: Before buying, use tools to assess credit standing and cash flow stress, avoiding a rushed mortgage drawdown without proper risk checks. 👉Click here to learn more about our Intelligent Financial Health Analysis!

Benefits of Managing Your Credit Score

Smoother Approvals (Loans / Credit Cards):

• Rates & Limits: Higher scores generally mean easier approvals, better rates, higher limits, and more flexible terms. Low scores often mean higher interest or rejection.
• Higher Approval Rates: Knowing your credit score helps you gauge your chances of success and prepare accordingly, while avoiding unnecessary or excessive applications.

Better Financial Control:

• Early Problem Detection: Regularly reviewing your credit report allows you to identify errors or suspicious activity early, preventing incorrect data from damaging your borrowing power.
• Preventing Excessive Applications: Frequent credit inquiries in a short period can lower your score. Use free credit check platforms to understand your standing first. This avoids "trial and error" applications or excessive rate-shopping, keeping your credit health intact.

WeLab Bank Helps You Understand Your Credit and Stabilise Your Finances

To manage negative equity risks effectively, you must first assess your financial standing. With WeLab Bank’s Intelligent Financial Health Analysis¹, you get free, unlimited⁴ access to your financial health insights, helping you stay prepared and in control:

• Your credit status over time
• Early warning signs that protect your financial health
• More confident repayment and investment decisions
• Zero fee, unlimited⁴ access to your personal credit status
• Personalised financial health tips⁵ for long term positive outcomes

Negative equity is not the end of the road. With transparency, active management, and the right tools, you can navigate market swings prudently.

🔥 Log in to the WeLab Bank App to view your TransUnion credit score and start a more proactive, healthier financial journey today.

^{To borrow or not to borrow? Borrow only if you can repay!}

^Remarks:

^{1. The TransUnion credit rating and related content are for reference only. WeLab Bank shall have no liability or responsibility relating to any aspect of or disputes arising from the use the Intelligent Financial Health Analysis.}

^{2. Source: Hong Kong Monetary Authority, Residential mortgage loans in negative equity: End of September 2025 (2025).}

^{3. Source: MoneyHero, What Is Negative Equity? Causes and Impact (2024).}

^{4. Users must use WeLab Bank App and hold a valid WeLab Bank core account, and agree to the relevant terms and conditions each time.}

^{5. The Personalized Financial Advice is only applicable to customers who have successfully disbursed a loan. The advice does not constitute any offer, solicitation, recommendation, comment or any guarantee to the purchase or sale of any financial products or services. This advice is developed based on information provided by customers. WeLab Bank shall not be obliged to any responsibility in case of wrong, incorrect, incomplete or invalid information.}