Understanding Early Repayment Charges on UK Mortgages

Published 1st February 2026

Early repayment charges (ERCs) are fees that mortgage lenders charge if you pay off your mortgage early or overpay beyond an agreed limit during a fixed or discounted rate period. They can amount to thousands of pounds and are one of the most important considerations when deciding whether to switch mortgage deals, make large overpayments, or sell your property. Understanding how ERCs work is essential for making informed decisions about your mortgage.

What Is an Early Repayment Charge?

An early repayment charge is a penalty fee that your mortgage lender charges if you repay all or a significant portion of your mortgage before the end of your agreed deal period. When you take out a fixed-rate or discounted-rate mortgage, the lender offers you a favourable rate for a set period (typically two, three, or five years) on the understanding that you will keep the mortgage for the full term of that deal. The ERC compensates the lender for the interest they will lose if you leave early.

ERCs are typically calculated as a percentage of the outstanding mortgage balance at the time of repayment. The percentage usually decreases each year during the deal period, so the earlier you leave, the more you pay.

Typical ERC Amounts

ERC amounts vary between lenders and mortgage products, but here are typical figures for common mortgage deal types:

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

Key point: ERCs only apply during the deal period. Once your fixed or discounted rate period ends and you move onto the lender's standard variable rate (SVR), there is typically no ERC. You are free to switch, overpay, or repay without penalty.

When Do ERCs Apply?

ERCs are triggered in several common situations:

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

Most fixed-rate and discounted-rate mortgages allow you to overpay up to 10% of the outstanding balance each year without incurring an ERC. This is a crucial feature for anyone who wants to reduce their mortgage faster while still benefiting from a competitive fixed rate.

Example: If your outstanding mortgage balance is £180,000, you can typically overpay up to £18,000 in a calendar year without penalty. That works out at £1,500 per month on top of your regular payment. For most people, this is more than enough headroom for regular overpayments.

However, the 10% figure is not universal. Some lenders offer less generous allowances (sometimes only 5%), while others may offer unlimited overpayments even during a fixed rate period. A few lenders calculate the 10% based on the original loan amount rather than the outstanding balance, which is more generous. Always check your specific mortgage terms.

What happens if you exceed the allowance?

If you overpay beyond your annual allowance, the ERC is typically charged only on the excess amount, not on the full overpayment. For example, if your allowance is £18,000 and you overpay £25,000, the ERC would apply to the £7,000 excess.

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

In some situations, paying the ERC can actually save you money in the long run. This is most common when interest rates have dropped significantly since you took out your fixed rate, and the savings from switching to a new, lower rate over the remaining mortgage term outweigh the ERC cost.

Important calculation: To determine whether paying the ERC is worthwhile, compare the total cost of staying on your current rate until the deal ends against the total cost of paying the ERC plus the new rate. Include all fees such as arrangement fees, legal costs, and valuation fees for the new mortgage. Many mortgage brokers can run this calculation for you.

ERCs on Different Mortgage Types

Fixed-rate mortgages

Almost all fixed-rate mortgages include ERCs. The ERC period matches the fixed rate period (2 years, 3 years, 5 years, etc.). Some 10-year fixed rates have particularly high ERCs in the early years, sometimes 6% or more.

Tracker mortgages

Tracker mortgages that track the Bank of England base rate may or may not have ERCs, depending on the product. Many trackers offer more flexibility than fixed rates. Check your specific terms.

Discounted rate mortgages

These typically have ERCs similar to fixed-rate products. The ERC period usually matches the discounted rate period.

Standard variable rate (SVR)

SVR mortgages rarely have ERCs. You are usually free to overpay, switch, or repay at any time without penalty. However, SVR rates are typically higher than the best fixed or tracker rates.

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.
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.