Early Repayment Charge UK 2026: How ERCs Work and How to Avoid Them

What Is an Early Repayment Charge?

An early repayment charge (ERC) is a fee charged by a mortgage lender when a borrower repays a fixed-rate or tracker mortgage before the end of the agreed deal period. Early repayment charges exist because lenders commit to providing funds at a fixed rate for the product term, and early repayment disrupts the lender's funding arrangements.

Early repayment charges are typically expressed as a percentage of the outstanding mortgage balance. On a 200,000 pound mortgage with a 3 percent early repayment charge, the ERC would be 6,000 pounds. This cost must be weighed against any saving from moving to a better rate before deciding whether early repayment makes financial sense.

Early repayment charges apply to fixed-rate mortgages, most tracker mortgages during their initial period, and discounted variable rate products. Standard variable rate mortgages typically carry no early repayment charge, which is why borrowers who have lapsed onto SVR can move at any time without penalty.

How Early Repayment Charges Are Calculated

Early repayment charge rates reduce over the product term in most cases. A typical five-year fixed-rate mortgage might carry an early repayment charge of 5 percent in year 1, 4 percent in year 2, 3 percent in year 3, 2 percent in year 4, and 1 percent in year 5. This stepping-down structure reflects the reducing risk to the lender as the fixed period progresses.

Some mortgages carry a flat early repayment charge across the full product term - for example, 2 percent in all years. Others use a more complex formula based on the present value of the remaining interest payments. The specific early repayment charge structure is set out in the mortgage offer documentation.

The early repayment charge is calculated on the outstanding balance at the time of repayment, not the original loan amount. For a borrower who has made overpayments and reduced the balance, the early repayment charge base amount is correspondingly lower.

When Does an Early Repayment Charge Apply?

An early repayment charge applies in the following circumstances: remortgaging to a new lender before the deal period ends; repaying the mortgage in full (for example on sale of the property) before the deal period ends; and making overpayments that exceed the annual permitted allowance (typically 10 percent of the outstanding balance).

For the overpayment case, the early repayment charge applies only to the amount that exceeds the permitted allowance, not the full overpayment. If the annual allowance is 20,000 pounds and the borrower overpays by 25,000 pounds, the ERC applies only to the 5,000 pound excess.

Porting a mortgage - transferring the current deal to a new property - avoids an early repayment charge in most cases. The lender redeems the existing mortgage on the property being sold and simultaneously creates a new mortgage on the property being purchased on the same rate and terms. ERCs do not apply when porting, though the lender must agree to the port.

How to Avoid Paying an Early Repayment Charge

The most straightforward way to avoid an early repayment charge is to wait until the current deal period expires before remortgaging or repaying. Most lenders allow borrowers to lock in a new rate up to six months before the current deal ends, protecting against rate increases without triggering an ERC on the current product.

Staying within the permitted annual overpayment allowance - typically 10 percent of the outstanding balance - avoids ERCs on overpayments. Borrowers who want to overpay more than the allowance can do so across two calendar years, making part of the overpayment near the end of one year and the remainder at the start of the next.

If the property is being sold, whether the early repayment charge is unavoidable depends on whether the mortgage can be ported to a new property. If porting is possible and the borrower is buying a new property simultaneously, the ERC can be avoided. If not porting, the ERC must be paid on sale.

When Paying an Early Repayment Charge May Be Worth It

Paying an early repayment charge can be financially beneficial if the saving from moving to a significantly lower rate over the remaining deal period exceeds the ERC cost. This calculation is worth running when mortgage rates have fallen materially since the current deal was taken out.

For example, a borrower on a 5.5 percent five-year fix with three years remaining on a 300,000 pound mortgage might pay an ERC of 3 percent (9,000 pounds) to remortgage to a 4 percent five-year fix. The annual interest saving is approximately 4,500 pounds. The ERC payback period is two years - after which the borrower is better off by 4,500 pounds per year for the remaining term.

A mortgage broker or the existing lender can model the break-even calculation on request. Most lenders provide an early repayment charge illustration showing the exact ERC amount at any given date, which enables accurate cost-benefit analysis before deciding whether early exit is worthwhile.

Early Repayment Charges and Product Transfers

A product transfer with the existing lender - switching to a new rate without changing lender - does not trigger an early repayment charge in most cases. The FCA Mortgage Charter requires participating lenders to offer product transfers at the end of a fixed period without a new affordability assessment, and product transfers mid-deal are also generally ERC-free.

This means a borrower who wants to take advantage of a rate improvement from their existing lender can often do so without an early repayment charge, even during the current fixed period. However, the rate available on a product transfer is typically the lender's current rate for that product, which may not be as competitive as rates available by remortgaging to a new lender.

Borrowers should compare the rate available on a mid-deal product transfer against the ERC cost of remortgaging to a new lender when rates have fallen significantly. The right choice depends on the size of the rate improvement available, the remaining ERC, and the products available in the wider market.

Frequently Asked Questions

Last reviewed June 2026 · Kael Tripton Editorial