Almost every UK fixed-rate mortgage lets you overpay up to 10% of the outstanding balance each year with zero penalty. Go past that and an early repayment charge (ERC) of 1% to 5% applies — but only on the excess, not the whole overpayment. And here's the twist most people miss: even paying the charge is often worth it, because the interest you save usually dwarfs the fee.
Why lenders charge you for paying them back
It sounds mad, right? You owe the bank money, you offer to pay it back faster, and they charge you a fee for the privilege. But there's a reason: when a lender fixes your rate for five years, it borrows or hedges money to fund that deal. Pay back early and its funding maths breaks. The early repayment charge compensates the lender for the interest it expected to collect.
That's why ERCs are tied to fixed and discounted deals. Once your deal ends and you drift onto the standard variable rate — or if you're on a tracker with no ERCs — you can overpay without limit. No deal, no charge. Simple.
The industry standard is a 10% annual allowance, and it resets every year. On a £200,000 outstanding balance, that's £20,000 a year you can throw at the mortgage penalty-free. Be honest: were you ever going to find £20,000 a year? For the vast majority of borrowers, the 10% limit is so generous it might as well not exist. It's the people making big lump-sum payments — inheritance, redundancy payout, bonus — who need to pay attention.
How the 10% is actually calculated
The details matter here, because lenders don't all measure it the same way. The common setup: 10% of the outstanding balance at the start of each deal year — usually measured on the anniversary of your mortgage start date, though some lenders use the calendar year (1 January to 31 December).
Two things to watch:
- The allowance shrinks as your balance shrinks. 10% of £200,000 is £20,000. But after a few years of normal payments and overpayments, your balance might be £160,000 — now your allowance is £16,000. It's always 10% of what's currently owed, not 10% of the original loan.
- Both lump sums and monthly overpayments count toward the same allowance. If you've been paying £300 extra a month (£3,600 a year) and then drop a £20,000 lump sum on a £200,000 balance, you've used £23,600 of your £20,000 allowance. The £3,600 excess would attract the ERC.
A few lenders are more generous — 15% or 20% allowances exist, and tracker deals often have none at all. And lenders are loosening up: in September 2026, LiveMore launched unlimited overpayment frequency on its mortgages and cut the minimum overpayment from £200 to £25, a sign that competition is pushing flexibility up. But always check your own mortgage offer document. Your lender's exact terms beat any general rule I can give you.
The worked example: when the ERC is worth paying anyway
This is the part most guides won't tell you. ERCs look scary — "5% charge!" — but the maths is usually on your side. Let's work it through.
Say you owe £200,000, you're in year two of a five-year fix at 4.50%, your ERC is 4%, and your allowance is 10% — £20,000 penalty-free. Now you inherit £40,000 and want to put the lot into the mortgage.
Here's the breakdown:
- The first £20,000 goes in free. No charge at all.
- The extra £20,000 above your allowance attracts the 4% ERC — but only on the excess. That's £20,000 × 4% = £800.
- Your balance drops to £160,000. Over the remaining ~23 years, that extra £20,000 of repayment saves you roughly £10,000–£12,000 in interest at 4.5%.
Read that again: pay £800, save over £10,000. It's not even close. The ERC is a one-off fee; the interest saving compounds for decades. People treat ERCs like a brick wall. They're more like a small toll on a very fast road.
The typical ERC schedule on a five-year fix looks like this:
| Year of deal | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|
| Typical ERC | 5% | 4% | 3% | 2% | 1% |
The charge falls each year, so if you're close to your deal ending, sometimes waiting a few months drops you into a lower band. And if your deal ends within weeks? Just wait. Zero charge.
The real rule: compare the ERC against the interest you'd save, not against zero. Almost nobody compares the fee against doing nothing — and doing nothing always costs you the full interest. Run both scenarios in our mortgage overpayment calculator and let the numbers decide.
Four mistakes that actually cost people money
Mistake 1: Assuming the ERC applies to the whole overpayment. It doesn't. It applies to the amount above your 10% allowance. This single misunderstanding stops thousands of people from making overpayments they'd easily afford within reason.
Mistake 2: Overpaying before checking the measurement date. If your allowance year runs January to December and you dump £25,000 in on 20 December, then another £10,000 in February, you may have breached the previous year's limit. Time your lump sums with the reset in mind — a January payment might be the difference between free and a 3% charge.
Mistake 3: Overpaying while carrying expensive debt. This one is about priorities, not allowances. If you have a credit card at 24% APR or an overdraft at 40%, clear those before touching the mortgage. Every pound should go where it saves the most interest. A mortgage at 5% is cheap money compared to most unsecured debt. Our credit card interest guide shows just how brutal those rates are.
Mistake 4: Draining the emergency fund to overpay. Overpayments are a one-way street — most lenders won't let you borrow them back. Keep three to six months of expenses in savings first. A mortgage with a £10,000 smaller balance is no comfort if you can't make next month's payment because the car died.
When there's no limit at all
Remember: ERCs only exist inside a deal period. In these situations you can overpay as much as you like, penalty-free:
- You're on your lender's standard variable rate (SVR) — which is also your cue to remortgage anyway, since SVRs are brutally expensive.
- Your fixed deal has ended, even if you haven't switched yet — the ERC dies with the deal.
- You're on a tracker or discount mortgage without ERCs — many trackers are ERC-free, which is one of their genuine advantages. Our fixed vs variable rate guide compares the trade-offs.
- You're within your annual allowance — which, as we've established, covers almost everyone.
If your deal is ending in 2026 — and with 1.8 million fixed deals expiring this year, there's a decent chance it is — read our remortgage vs overpayment guide for the full sequencing playbook.
Check your overpayment headroom
Enter your balance and rate to see exactly how much you can overpay penalty-free — and what it saves you.
Open the mortgage overpayment calculator →Quick answers
Can I overpay more than 10% without penalty?
Within the 10% annual allowance, yes — it's designed for exactly that. Above it, you'll trigger the ERC on the excess amount only. And as the worked example above shows, even the charge is usually worth paying, because the lifetime interest saving is far larger.
Does the 10% allowance reset every year?
Yes. Most lenders reset the allowance annually, either on your mortgage anniversary or on 1 January. Unused allowance doesn't roll over, so there's no benefit in "saving up" your allowance across years — use it or lose it.
Is the ERC charged on the full balance or just the excess?
Just the excess over your allowance. If your allowance is £20,000 and you overpay £25,000 with a 3% ERC, the charge is 3% of £5,000 — £150. A common and costly misunderstanding.
Should I overpay near the end of my fixed deal?
If you're within your allowance, yes — do it anytime. If you're near the deal end date, consider waiting until the deal expires, when all ERCs disappear entirely. A few weeks of patience can save you a four-figure fee for no real cost.
Do overpayments reduce my monthly payment or my term?
Usually they shorten your term — you keep paying the same amount each month and finish earlier, which maximises interest savings. Some lenders let you choose to reduce the monthly payment instead, which helps cash flow but saves less interest overall. Ask your lender which default applies to you.
General information only, not financial advice. Overpayment allowances, ERC schedules and measurement dates vary by lender and product. Figures are illustrative and rounded. Always check your own mortgage offer document or speak to a qualified mortgage adviser before making overpayments.