Early Repayment Charges: What They Are & How to Avoid Them

More than 700,000 fixed-rate mortgage deals will end in the first half of 2026. Those borrowers are now really considering their alternatives, and a huge number of them will try to switch or remortgage without understanding how much it will cost to leave their current deal early.

Under the Financial Conduct Authority’s Mortgage Conduct of Business (MCOB) rules, lenders can legitimately charge you an early repayment fee until the last day of your tie-in term. The Bank of England’s base rate is 4.5% as of early 2026. Borrowers who locked in higher rates between 2022 and 2024 are now trying hard to get out.

Before they make the call, we help UK homeowners at Real Estate Agents London understand just how much it will cost them to leave a mortgage contract early. This guide explains what an early repayment charge is, how it is calculated, and when it applies in 2026.

What Is an Early Repayment Charge and How Does It Work?

A borrower who pays off their mortgage early has to pay an Early Repayment Charge (ERC) to their mortgage lender.  In simple terms, if you have a 5-year fixed mortgage and you try to leave (or pay more than you are allowed) in year 2, your lender will charge you money for breaking the agreement early.

Most UK lenders charge between 1% and 5% of your outstanding mortgage balance as an early repayment charge.

This applies whether you pay off the loan in full or make an extra payment that is more than your annual limit. Lenders charge this fee because fixed and discounted deals are structured around a guaranteed income stream. If you leave early, you break that arrangement. The ERC protects them from that loss in their contract.

The charge is a percentage of the amount you still owe on your mortgage. That percentage usually reduces with every year you stay in the arrangement, so the sooner you leave, the more you pay.

What Is the Difference Between an ERC and a Mortgage Exit Fee?

UK homeowners often mix up these two charges, which are not the same. If you leave your deal before the tie-in time finishes, you will have to pay an early repayment charge. On the other hand, when you close a mortgage account, your lender will charge you a mortgage exit fee, also known as a deeds release cost. This is a regular administrative fee.

Most mortgages have exit costs that vary from £50 to £300.

Which Types of UK Mortgage Deals Carry an ERC?

• Prepayment penalty on a fixed-rate mortgage lasts for the whole fixed duration. 
• Discounted variable-rate mortgages also have one, which is based on how long the discount period lasts. 
• Some tracker mortgages have an ERC as well, although many tracker products on the market allow you to leave without paying a penalty.

There is no ERC with Standard Variable Rate mortgages. If your fixed or discounted agreement has finished and you’ve switched to your lender’s SVR, you can leave at any moment without paying a fee. A lot of borrowers don’t know this and keep paying the higher SVR rate for no reason.

You can read more about how the Bank of England’s recent interest rate cuts are affecting mortgage costs in 2026 and what that means for your monthly payments.

How Is an Early Repayment Charge Calculated in the UK?

Multiply your outstanding mortgage balance by the ERC rate for your current year, and the result is the amount you’ll need to pay. However, the majority of lenders use a sliding scale, where the percentage drops with each additional year. 

In the first year of a five-year fixed term, there may be a 5% fee, which would drop to 1% in the fifth year. Because of this structure, you can save thousands by timing your exit and repayments wisely.

Some lenders calculate the charge using the original loan amount instead of the remaining balance. Because your balance decreases over time, this costs more. So it’s better to always check your mortgage offer to see how your lender calculates it.

Year-by-Year ERC Calculation Example on a £220,000 Mortgage

The table below shows how the fee changes over a five-year fixed agreement as both the percentage and the balance owed go down over time.

In this case, waiting just one year to leave can lower your bill by £2,440. If you can be flexible with when you borrow, that difference is worth taking into account when you make your choice.

How to Find Your Exact ERC

Check your original mortgage offer first because it clearly states the ERC rates and when they apply. You can also get a redemption statement from your lender. This will show you your exact ERC, how much you still owe, and how much you need to pay off the mortgage.

How ERCs Differ Between UK Lenders?

ERC structures vary more than most borrowers realise. The percentage charged, the years it applies, and the basis for calculation all differ across lenders. The table below shows how the UK’s major lenders structure their ERCs on standard residential fixed-rate mortgages as of 2026. 

Always confirm current terms directly with your lender or broker, as rates and ERC schedules are updated regularly.

What Does This Mean in Real Pounds on a £200,000 Mortgage?

The percentage difference between lenders looks small on paper. In real money, leaving in year 1 with Barclays costs £4,000 more than leaving with HSBC on the same balance.

HSBC’s lower early ERC structure makes it significantly cheaper to exit in the first 2 years. Barclays and NatWest carry higher early charges but reduce more steeply across the deal.

Things to Check When Comparing ERCs

First, see how the ERC is calculated. Is it based on your remaining balance or the original loan? Most major lenders use the remaining balance, which is better for you. Some specialist and buy-to-let lenders may still use the original amount, which can cost more.

Second, focus on the charges in year 1 and year 2. These are the most important because life changes often happen early. A 5% charge in year 1 can cost you much more than a 2% charge on the same mortgage.

Third, check if your lender allows ERC-free product transfers. Some lenders, like Nationwide and HSBC, may let you switch to a new deal without paying the full charge in certain cases.

Note: ERC rules can change and vary by product. Always check your mortgage offer and request a current redemption statement before making any decision.

When Does an Early Repayment Charge Apply in the UK?

An early repayment charge applies in 3 situations:

• You repay your mortgage in full before the deal ends
• Within the fixed or tied-in period, you change lenders or mortgage products
• You pay more than what your lender allows.

Do You Pay an ERC When You Sell Your House?

Yes. If you sell your home, you have to repay your mortgage in full. Plus, if you are still in your tie-in period, this can trigger an Early Repayment Charge. 

The charge is taken from the money you make from the sale, along with the remaining mortgage balance. For example, if you are in year 2 of a 5-year fixed deal with a £214,000 balance and a 4% ERC, selling your home would cost £8,560 in charges alone, before other selling costs. 

The only way to avoid this charge when selling is by porting your mortgage to a new property.

If you are considering selling your property in London, our team at Real Estate Agents London can help you factor all exit costs into your sale strategy from the outset.

How Can You Avoid an ERC by Porting Your Mortgage?

Porting means you transfer your existing mortgage to a new home instead of closing it and taking a new loan. If your lender agrees to the port, you don’t pay breakage costs on the mortgage you move. But there are conditions:

• The lender will check again if you can afford the mortgage on the new property.
• If you need extra borrowing, that extra amount will be at a new interest rate.
• The sale of your old home and the purchase of the new one must be completed on the same day (simultaneous completion).
• If the timing doesn’t match, some lenders may still charge the ERC.

How Much Can You Overpay Without Triggering an ERC?

Most UK lenders let you overpay your mortgage by up to 10% of your remaining balance each year without charging an Early Repayment Charge (ERC). If your mortgage is £200,000, you can normally pay off up to £20,000 more in a year without any problems.

Some lenders are more flexible as they allow up to 20% overpayments per year, and a few tracker mortgages even allow unlimited overpayments.

However, this depends on the lender, so you should carefully read your mortgage offer agreement before making any extra payments.

Is It Ever Worth Paying an ERC to Remortgage?

Yes, in some situations, it can still make sense to pay an Early Repayment Charge (ERC) to refinance. Paying an ERC can feel counterintuitive, but long-term savings can outweigh the cost. The most important factor to consider is the break-even point. This shows how long it will take for the money you save each month on a new mortgage to cover the ERC. 

How to Calculate Your Break-Even Point Before Paying an ERC

To calculate it, you simply divide the ERC amount by your monthly savings. If your ERC is £4,500 and your monthly payment is currently £1,100, but a new contract lowers it to £970, you save £130 a month. If you divide £4,500 by £130, you get about 35 months.

This means that it would take just under three years to get back the money you spent on the ERC. If you plan to stay in the property for longer than this time, switching mortgages would save you money overall, even after paying the fee.

This is why you shouldn’t just ignore ERC decisions. A correct assessment of the break-even point will easily show you if remortgaging is worth it for you.

How Can You Avoid or Reduce an Early Repayment Charge?

You can avoid or reduce ERC by planning your remortgage early, using overpayment allowances wisely, or choosing a flexible mortgage product from the start.

Choose the Right Time to Remortgage

Most lenders in the UK allow you to get a new mortgage up to six months before your current one ends. You don’t have to pay any ERC because the new deal starts right after the old one ends.

However, you need to plan this earlier because if you miss this deadline and switch to the Standard Variable Rate (SVR), you could end up paying more each month than any ERC would have cost.

Use Your Annual Overpayment Allowance

If you want to reduce your balance before switching, instead of paying a large lump sum at once, you should spread overpayments over several years. Your allowance normally lets you do this at a rate of 10% every year. 

For instance, with a 10% annual overpayment allowance, if your mortgage balance is £200,000, you can overpay up to £20,000 in year 1 without any penalty. If your balance then reduces to £180,000, your new 10% allowance in year 2 would be £18,000.

This lowers the amount you owe on your mortgage without costing you anything. A smaller balance also means a lower ERC, since the fee is based on how much you still owe.

Choose a Mortgage Without an ERC From the Start

Some mortgages, like tracker agreements or SVR mortgages, don’t normally have an ERC, which means you can quit whenever you want without having to pay a fee.

But there is always a trade-off with these:

• Interest rates can go up and down, especially with trackers.
• Payments every month could go up.
• They are less common and usually cost more than similar deals that do have a charge.

If you are planning your next property purchase and want to understand which mortgage product suits your circumstances, our buy property service in London can connect you with the right adviser from the start.

Can You Avoid an Early Repayment Charge Through a Product Transfer?

Yes. A product transfer means switching to a new deal with your current lender instead of moving to a new one. Because you stay with the same lender, many will waive the ERC or charge much less.

• A product transfer completes in days rather than weeks. 
• No solicitor is needed. 
• No full affordability reassessment in most cases.

However, not all lenders offer this, and the rules can vary. The table below shows how major UK lenders handle product transfers.

How to Apply for a Product Transfer With Your Lender

• Contact your lender directly or through your existing mortgage broker. 
• Most major lenders allow you to view and secure product transfer rates online through your mortgage account. 
• You can typically lock in a new rate up to 6 months before your current deal ends, with the new rate starting the day the old one expires.
• Request a product transfer illustration in writing before agreeing to anything. 
• This document shows your new rate, monthly payment, and any charges that apply. Compare it against the open market before committing.

What Are Your Rights If You Dispute an ERC?

Under FCA rules (MCOB), your lender must clearly tell you about any Early Repayment Charge (ERC) before you sign the mortgage. The amount of the charge must also match what is in your mortgage offer.

If they charge you more than what your agreement states or if you weren’t given the right information, you can challenge it.

How to Make a Complaint About an ERC

Write a formal complaint to your lender first. They must respond within 8 weeks. You can submit your complaint to the Financial Ombudsman Service (FOS) if they don’t respond or if you don’t like what they say. 

The FOS has supported complaints when:

• Borrowers weren’t given a clear ERC schedule when they bought the property.
• The fee didn’t match the conditions of the initial mortgage contract.

If your dispute involves wider issues around your tenancy or property arrangement, our guide on resolving landlord and tenant disputes in London covers the formal complaints process in detail.

When Can You Get an Early Repayment Charge Waived Due to Hardship or Life Events?

Most borrowers assume an ERC is always unavoidable once triggered. In a number of specific circumstances, that is not true. Some lenders in the UK have official policies that waive the ERC if you face serious illness, bereavement, relationship breakdown, and financial hardship. 

If you know these rules before you call your lender, it could really change how much you have to pay.

Nationwide: Most Comprehensive Published Waiver Policy

Nationwide has the most detailed ERC waiver policy of any major UK high-street lender. Nationwide’s official mortgage sites say that the ERC is completely waived in the following situations:

• Claim for critical sickness in the name of the borrower
• The death of the borrower’s partner, spouse, or themselves
• Divorce or separation in which one party vacates the property and the mortgage is settled through a financial agreement.
• If the borrower sells after a breakup because of domestic abuse, that is domestic violence.
• If the settlement proceeds are used to repay part or all of the mortgage, the ERC will be waived.
• Compulsory military relocation or posting.
• Relocating to provide full-time care for a dependent family member
• When an endowment policy matures and the proceeds are used to repay an interest-only mortgage

This list is more comprehensive than any other major UK high-street lender has publicly confirmed. Nationwide borrowers facing any of these circumstances should contact their lender directly and mention these particular exemptions before assuming the charge applies.

Santander: Extended ERC Waiver for Home Movers

From February 2025, Santander has given existing customers who are moving home more time to use their ERC waiver. People who have 9 months or fewer left on their current term can now move to a new Santander deal without having to pay the ERC. This is an extension of the previous 6-month limit.

This is how the waiver works. If you borrow the same amount or more on the new property, you don’t have to pay the ERC at all. The waiver only applies to the amount of the new contract if you borrow less than the balance on your current mortgage. The rest of the amount may still have a fee.

What About Other Lenders?

HSBC, NatWest, Barclays, and Halifax don’t have official rules on their public mortgage pages for waiving ERC fees for hardships or life events. This doesn’t mean that waivers never happen. All lenders have to follow FCA Consumer Duty regulations, which say that companies must behave in the best interests of clients who are in a weak position.

Borrowers with any of these lenders who are dealing with terminal illness, death, losing their job, or significant financial difficulty should get in touch with their lender’s mortgage assistance or hardship team immediately and explain their situation in writing. 

Lenders can’t just ignore a real hardship request without giving it fair thought because of the Consumer Duty. However, decisions are made on a case-by-case basis and are not guaranteed.

How Do ERCs Work on Buy-to-Let Mortgages?

Buy-to-let mortgages also have Early Repayment Charges (ERCs), just like residential mortgages. However, the way they are calculated can sometimes be different. Some lenders charge ERC based on the original loan amount, not the remaining balance. This can make the charges higher, especially later in the mortgage term.

Porting is also not easy for buy-to-let mortgages. Most of the time, lenders will check:

• Income from renting
• How well the property does
• Overall affordability

Because of this, the process can be harder than with home loans. Landlords managing multiple properties or considering a portfolio switch should factor ERC costs across every product before making a move. Our property asset management services in London are designed to help landlords plan these decisions strategically.

When do Landlords Normally have to deal with ERCs?

Here are three common situations when landlords face ERC decisions:

• Selling a rental property before the mortgage is paid off
• Changing to a lower mortgage rate when the term is still fixed
• Moving the mortgage to a different investment property

“Buy-to-let ERCs work in a similar way to normal mortgages, but they can be more expensive and harder to manage due to stricter rules and checks for landlords.”

Final Verdict

An Early Repayment Charge (ERC) is not an unfair fee; it is part of your mortgage terms. It can be expensive at the start of a deal, but it usually goes down each year. Before you pay it, always compare the cost with how much money you could save by getting a new mortgage. 

In many cases, timing, porting, and product transfers can help you avoid it completely. And when none of those options apply, the break-even calculation almost always makes the decision obvious.

Already approaching the end of your fixed deal? Read our guide on “how UK lenders assess your eligibility for property finance in 2026” to find out how to lock in a new rate before your deal expires, with no penalties attached.

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