Mortgage early repayment charges and overpayments: how the rules work
Published · 3 min read · Figures checked . UK rules and rates change, so check the official sources below before you act.
Paying off some or all of a mortgage early can trigger an early repayment charge. This guide explains what the FCA rules say about these charges, what lenders must tell you in advance, and how yearly overpayment allowances usually work.
Who this guide is for
This is general information for people with, or thinking of taking, a residential mortgage that is a regulated mortgage contract under Financial Conduct Authority (FCA) rules. It does not cover business loans or older second charge contracts, which can follow different rules. If you are unsure whether your mortgage is regulated, your lender can tell you. It is not advice for your own situation.
The information comes from the FCA Handbook and an FCA paper, both read on 12 October 2026.
What an early repayment charge is
The FCA defines an early repayment charge (ERC) as a charge a lender makes if the loan is repaid, in full or in part, before a date or event set out in the contract. In practice this often happens during a fixed rate period, for example if someone sells their home or switches to another deal early.
What the rules require
The FCA's mortgage rules (MCOB 12.3) say a lender must not use a regulated contract to impose an ERC unless the charge meets two conditions.
- It can be expressed as a cash value.
- It is a reasonable pre-estimate of the costs the lender faces because the customer repaid before the contract ended.
The FCA's guidance adds that a lender should not use the "Rule of 78" to work out the charge, because it effectively overstates the lender's cost. A lender may also set the same ERC level for all contracts of a similar type, such as everyone on a particular fixed rate, rather than calculating it person by person.
What you should be told in advance
Before you enter a contract, take a further advance, or switch all or part of a contract to a different interest rate, the lender must disclose the maximum amount payable as an ERC if one applies. This appears in the illustration and offer documents. These are worth reading closely, as the charge for your contract is set there.
Overpayments
An overpayment is paying more than the required monthly amount. In a 2025 consultation paper (CP25/11, published May 2025), the FCA said most lenders allow voluntary overpayments of between 10% and 20% a year of the outstanding balance during a fixed rate period without an ERC. The FCA described this as how lenders generally work, not as a rule. The exact limit, and how it is measured, depends on your own contract.
What overpaying can do
The FCA says overpaying within the allowance will be a good option for many people, while others may value the certainty of formally shortening the mortgage term, which automatically changes the monthly payment. Interest rates and charges vary, so how much a particular overpayment saves depends on the mortgage.
Differences across the UK
The FCA regulates financial firms across the UK, but this guide has not checked whether any parts of the rules work differently in Scotland, Wales or Northern Ireland. The documents from your lender and the official pages linked below will set out what applies to you.
If something goes wrong
If a charge is not what you were told, a first step is to ask the lender to explain it in writing. If you are not satisfied with the reply, complaints can usually be taken to the Financial Ombudsman Service, which is free. MoneyHelper also offers free, impartial guidance on mortgages.
Check before you act
Rules and lender terms change. It is worth confirming the details on the official pages linked below, and in your own mortgage documents, before relying on this guide.
Sources
For information only. See our disclaimer and editorial standards. Spotted an error? Tell us.
