Updated: January 14, 2022

Getting a Mortgage With No Early Repayment Charges

Need a mortgage with no early repayment charges? Whether it's a fixed, tracker, buy-to-let or anything else, our guide will show you how to get the best deal!

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Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: January 14, 2022

Mortgages with no early repayment charges offer complete flexibility to either overpay every month or pay off the full balance early. They can be an attractive alternative for anyone who’d prefer not to be tied to any fixed-term loan.

By following this guide, you’ll have a better understanding of both the benefits and drawbacks of this type of mortgage, what options are available and where to look for guidance.

Can you get a mortgage with no early repayment charges?

Yes, it’s possible. However, it’s not as commonly available as other mortgage types.  Rates and terms for this type of agreement can vary from lender to lender making it difficult to decide which option to choose.

Working with an experienced broker will help take the hassle out of this process as they will find the right one for you based on your unique financial situation and borrowing objectives.

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What is an early repayment charge?

An early repayment charge (ERC) is a financial penalty your mortgage lender may charge if you overpay on your mortgage by more than has been agreed in the original contract or if you pay off the entire amount before the date initially agreed.

An ERC is usually a percentage of the outstanding mortgage amount and typically falls between 1% and 5%.  This may seem like a relatively small charge but when applied to your total outstanding balance, it can mount up.  For example, a 1% charge on a total loan of £180,000 is £1,800.

In some cases, the percentage penalty applied will be reduced depending on how long you’ve been in contract with that particular lender – for example, for the first year of your mortgage it could be at 3% but then fall to just 1% by the fifth year.

Some lenders do offer flexibility when it comes to overpayments.  Known as an ‘overpayment allowance’, there are lenders that allow you to overpay by 10%, with a few even allowing up to 20%.

How to find a mortgage with no ERCs

If you’re looking for a mortgage with no ERCs, there’s a few steps you can take right from the outset which will make the process much more straightforward:

  1. Jot down your own unique objectives -what exactly are you looking for in searching for this type of mortgage and what is unique about your set of circumstances (self-employed / want to pay off the mortgage within 10 years /want flexibility in overpayments)
  2. Identify the lenders who are offering this type of mortgage
  3. Detail the conditions that each one is offering in terms of the charges applied and any leeway given to overpayments
  4. Consider working with a broker – with access to the latest information and detail on the mortgage variations available, they can help to narrow down the options for you.

What you’ll need for your application

Once you’re happy with the selected lenders, it’s time to gather the relevant paperwork.  The amount of documentation required will depend on which type of mortgage you’re going for but as a general rule you will need the following:

  1. Basic mortgage application documentation, for example three months of bank statements, proof of address and proof of income.  You can find a full list of the paperwork you’ll need in our complete guide to mortgage applications.
  2. An up to date credit report.  As there is a limited number of lenders offering this type of mortgage, a clean record will be important if you’re to qualify for a no ERC mortgage.  You can download your credit reports through our dedicated credit reports hub.
  3. Make an enquiry. Our unique broker-matching service is designed to match you with a broker best suited to your needs. In this case, an expert with previous experience of arranging no ERC mortgages.

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Eligibility requirements

This type of mortgage represents a higher risk for the lender so they may be looking for additional reassurance that you are financially viable.

For example, you may be required to demonstrate, in more detail, the following:

  • Evidence of earnings: If you’re employed you’ll need to provide payslips and most recent P60 earnings summary. If you’re self-employed you’ll typically need 2-3 years certified accounts
  • Affordability: do you have sufficient disposable income to meet your monthly repayments?
  • Deposit requirements: this can vary from lender to lender but, as a minimum you may be asked for between 10%-15%
  • Credit history: the better – and higher – your credit score, the more chance you have of securing this type of mortgage

Each lender works to their own set of eligibility criteria, so don’t worry too much if you don’t quite fit with this model as other lenders may be able to help.

What are the advantages of this type of mortgage?

There’s a number of reasons why mortgages with no ERCs can be attractive, such as:

  • It’s all about flexibility! With this kind of deal, you have greater freedom if your financial situation changes, for example you may be able to remortgage in the future without major penalties.
  • For anyone with variable income –  self-employed or those moving from contract to contract – this is an ideal way to adjust your mortgage payment upwards during periods of higher income to pay off your loan quicker
  •  If you’re working towards paying off your mortgage early, or within a few years, then this type of arrangement is perfect for that

They also have some drawbacks too…

Drawbacks

  • The cost. Interest rates tend to be higher. There may also be additional fees involved in setting up the loan.
  • The lending criteria for no ERC mortgages can often be stricter with a lot more conditions attached

Mortgages with no ERCs can be tricky to find and the best ones aren’t always available from mainstream lenders. An experienced broker would be able to identify the right one for you, saving you a lot of time and, potentially, some money too.

What type of mortgages are available?

There are a number of different types of mortgages with no ERCs, for example:

Get matched with a broker experienced in no ERC mortgages

There’s some valid reasons for looking at a mortgage without any ERCs, but finding a lender who will offer them can be tricky. Using an experienced broker will save you time and stress as they already know who can provide the most favourable terms.

Check out our free broker-matching service, where a speedy assessment of your needs and circumstances will pair you with the most suitable mortgage advisor for you – Make an enquiry to get started today.

Ask a quick question

We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different mortgage subjects. Ask us a question and we'll get the best expert to help.

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Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

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FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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