An Early Repayment Charge (ERC) is a penalty your lender charges if you pay off (or overpay beyond the allowance) during a fixed or tiered deal period. Understand ERCs properly and you'll avoid paying them unnecessarily, or know exactly when they're worth paying.
An ERC is a contractual fee that triggers when you repay a mortgage (or part of it, above the allowance) before the end of your incentive period. The "incentive period" is the time covered by your fixed, discounted or tracker deal, usually 2, 3, 5 or 10 years.
ERCs are separate from "exit fees" (a small admin charge some lenders add when you close the mortgage entirely) and from "early settlement interest" (a day-count interest calculation for the final month). ERCs are by far the biggest of the three.
When a lender offers you a 5-year fix at 4.3%, they've usually hedged their cost of capital for that 5-year period. If you clear the mortgage in year 2, they're left holding a hedge that no longer matches any loan. The ERC is their compensation for that mismatch. It's not pure profit, it's a genuine cost to them when people leave early.
That also explains why ERCs taper (reduce) over the fix period: the closer you are to the end of the deal, the less hedge mismatch there is, so the smaller the compensation needs to be.
Standard UK mortgages use a simple percentage of the amount you're repaying. Typical structures:
A few older or specialist mortgages use interest-based ERCs (based on the interest the lender would have earned over the remaining fix period), but they're unusual today.
Below is a representative schedule for a 5-year fixed-rate mortgage. Your lender's exact percentages will differ, check your mortgage offer or annual statement.
£200,000 mortgage, £20,000 annual allowance, but you receive a £25,000 inheritance and pay it all in. The £5,000 excess is charged at the current year's ERC rate. If you're in year 2 of a 5-year fix (4% ERC), that's £200 in charges. The interest saving on the extra £5,000 over the term usually dwarfs the £200, but it's worth knowing before you commit.
£180,000 balance, year 2 of a 5-year fix, 4% ERC tier. Cost to leave: £7,200. If a new deal saves you £120/month, you'd break even in 60 months (5 years), which is exactly when your current fix ends anyway. In that case, just wait. Our remortgage break-even calculator does the arithmetic.
You sell your house mid-fix and aren't buying another. The ERC applies on the full outstanding balance. On a £250,000 balance in year 1 of a 5-year fix at 5%, that's £12,500 straight out of the sale proceeds. Always worth checking if your mortgage is "portable" first, most modern fixes are, which means you can take the deal with you to a new property without triggering the ERC.
Five tactics that work:
Sometimes paying the ERC is the right move. Three scenarios:
The Financial Conduct Authority requires all UK lenders to disclose ERCs clearly in the mortgage offer and annual statement. If you can't find the figure, your lender is obliged to tell you on request within 10 working days. There's no legal cap on ERC size, but the FCA does require that ERCs are "a reasonable pre-estimate of the lender's loss", extortionate ERCs can be challenged through the Financial Ombudsman Service.
Every major UK lender's overpayment allowance, ERC taper and quirks are listed on our dedicated lender pages. Start with Nationwide, Halifax, Santander, or see the full list in the sitemap.