Understanding Early Repayment Charges on UK Mortgages

Published 1st February 2026

Early repayment charges. Three words that can turn an exciting remortgage plan into a very expensive mistake. ERCs are the fees lenders charge if you pay off your mortgage early or overpay too much during a fixed or discounted rate deal. On a typical fix they run to thousands of pounds. The charge is not discretionary and it is not negotiable at the point you leave, so the time to find yours is before you commit to anything.

What Is an Early Repayment Charge?

A lender that gives you a five-year fix has funded that lending on the same basis. If you leave early it loses the return it priced in, and the ERC recovers that. It is not an arbitrary penalty: under the FCA's mortgage conduct rules at MCOB 12.3.1R, a lender may only impose an early repayment charge that is "able to be expressed as a cash value" and is "a reasonable pre-estimate of the costs as a result of the customer repaying the amount due" early. The maximum charge must also be disclosed to you in the illustration before you enter into the contract.

ERCs are a percentage of your outstanding balance, and they typically drop each year through the deal. Leave in year one of a five-year fix? Ouch. Leave in year four? Still stings, but less so.

Typical ERC Amounts

These vary by lender and product, but here's what you'll typically see:

Two-year fixed rate

Year	Typical ERC	On £200,000 Balance
Year 1	2%	£4,000
Year 2	1%	£2,000

Five-year fixed rate

Year	Typical ERC	On £200,000 Balance
Year 1	5%	£10,000
Year 2	4%	£8,000
Year 3	3%	£6,000
Year 4	2%	£4,000
Year 5	1%	£2,000

The good news: ERCs only apply during your deal period. Once you roll onto the lender's standard variable rate (SVR), you're free. Switch, overpay or clear the balance in full, with no penalty. This is why so many people remortgage the moment their fix ends.

When Do ERCs Apply?

Three main situations will land you with an ERC:

Switching to a new mortgage deal (remortgaging): If you find a better rate with another lender and want to switch before your current deal ends, the ERC will apply to the full outstanding balance.
Selling your property: If you sell your home before the deal period ends, you will need to repay the mortgage in full, which triggers the ERC. Some mortgages are "portable," meaning you can transfer the mortgage to a new property, which avoids the ERC.
Making a large lump sum overpayment: If you overpay beyond your allowed annual overpayment limit (typically 10% of the outstanding balance per year), the excess amount may be subject to the ERC rate.

The 10% Overpayment Allowance

This is the magic number most people need to know. The vast majority of fixed-rate deals let you overpay up to 10% of the outstanding balance per year with no ERC. That's a lot of headroom for regular overpayments.

Worked example: on a balance of £180,000, a 10% allowance is £18,000 in the lender year, which is £1,500 a month on top of your normal payment. On a 5% allowance it is £9,000, or £750 a month. Either way, a £100 or £200 monthly overpayment is nowhere near the limit, which is why regular overpayers almost never trigger an ERC.

One caveat: 10% isn't guaranteed across all lenders. Some only offer 5%. Others allow unlimited overpayments even during a fix (rare, but they exist). A few calculate the 10% based on your original loan amount rather than the outstanding balance, which is actually more generous. Dig out your mortgage offer and check. It's in there somewhere.

What happens if you exceed the allowance?

At least the penalty only applies to the excess, not the whole amount. If your allowance is £18,000 and you overpay £25,000, the ERC hits the £7,000 over the limit. Small mercy, but still worth knowing.

How to Avoid or Minimise ERCs

Stay within your overpayment allowance: If you want to overpay regularly, calculate your annual allowance and spread overpayments throughout the year to stay within it. Our mortgage calculator can help you plan overpayments within your limits.
Wait for the deal to end: If your fixed rate is due to end within a few months, it may be worth waiting rather than paying the ERC to switch early. Calculate whether the savings from a new rate exceed the ERC cost.
Choose a portable mortgage: If you might move house during the deal period, a portable mortgage allows you to take your existing rate with you, avoiding the ERC.
Consider tracker or SVR mortgages: Standard variable rate mortgages and some tracker mortgages do not have ERCs. While the rates may be higher, the flexibility can be valuable if you expect to make large overpayments or move house.
Negotiate with your lender: In some cases, lenders will waive or reduce the ERC if you are switching to another product with the same lender (a product transfer). Always ask before assuming you will have to pay.
Use offset savings: If you have an offset mortgage, your savings reduce the interest charged without technically being an overpayment. This means no ERC applies, and you retain access to your savings if needed.

When Paying the ERC Might Be Worth It

Sometimes it genuinely makes financial sense to pay the ERC and switch. This is especially true if rates have dropped since you locked in your fix. The savings from a lower rate over the remaining term might dwarf what you pay in penalties.

Do this calculation: Add up the total cost of staying on your current rate until the deal ends. Then add up the ERC plus the new rate's total cost (including arrangement fees, legal costs, and valuation fees). Whichever number is lower wins. A decent mortgage broker can run this in five minutes.

ERCs on Different Mortgage Types

Fixed-rate mortgages

Almost always have ERCs. The penalty period matches the fix length. Watch the long fixes: some 10-year products carry ERCs of 6% or more in the early years, which is £12,000 on a £200,000 balance.

Tracker mortgages

It depends on the product. Some trackers have ERCs, many don't. Trackers tend to be more flexible than fixes on the whole. Check your terms.

Discounted rate mortgages

Usually have ERCs that match the discount period, similar to fixed-rate products.

Standard variable rate (SVR)

Almost never have ERCs. Total freedom to overpay, switch, or clear the lot. The trade-off is the rate itself, because an SVR is usually well above the best fixed or tracker deals on the market. You're paying for that flexibility through a higher monthly payment.

Key Takeaways

ERCs are a percentage of your outstanding balance, typically 1% to 5% depending on the mortgage type and how far into the deal you are.
Most mortgages allow 10% annual overpayments without triggering ERCs.
ERCs only apply during the deal period, not after you move to the SVR.
Your exact charge is set out in your mortgage offer and in the annual statement. MCOB 12.3.1R requires the charge to be capable of expression as a cash value, so if you cannot find the figure, ask the lender for a redemption statement rather than working from a percentage.
Always check your mortgage terms and calculate whether paying an ERC is worthwhile before making any decisions.
Use our mortgage overpayment calculator to plan overpayments within your ERC-free allowance.