Getting a Mortgage with No Early Repayment Charge (ERC)

There could be several reasons you’d like to find a mortgage without an early repayment charge (also known as a ‘redemption fee’). Typically, this penalty exists for anyone who wants to exit their mortgage deal early by paying the loan balance before the agreed terms or perhaps wants to overpay their loan by a certain amount.

While this is the case on regular mortgages, there are products and terms in place whereby some lenders waive this fee. So, if you’re wondering whether you can avoid early repayment charges (ERCs) on mortgages, read on to find out more.

Can you get a mortgage with no early repayment charges (ERCs)?

Yes, these kinds of penalty-free, easy-exit mortgages are available and not uncommon in the UK. However, it’s wise to be fully informed about what they might involve before committing to applying for one.

ERCs exist so lenders can recoup lost interest over the original mortgage term you would have paid and discourage borrowers from jumping from deal to deal. Banks want surety and stability, so expect to face a pay-off, even with a no ERC mortgage, if you want to leave a mortgage agreement by simply giving the whole sum back.

How to find one

The smartest way of finding a mortgage with no ERCs is to enlist the help of a mortgage broker with experience in these types of products. They could do the ‘heavy lifting’ for you by scouring the market to identify the best mortgage deals within these parameters. They would also be aware of specific deals that are usually only available via an intermediary rather than one that is available to the general public.

What are the benefits and drawbacks of this type of mortgage?

This pay-off may result in higher interest rates and additional fees when taking out the loan. Mortgages without a redemption fee attached are also usually much harder to secure, with stricter lending criteria that are often only open to certain types of borrowers. For this reason, it’s advisable to get a specialist broker on board from the start of your application.

On the plus side, mortgages without early repayment charges attached can offer greater flexibility for certain people in particular situations. For example, if you think you might be moving imminently, therefore will need to exit a mortgage that’s not locked in for a number of years. Or perhaps you expect a windfall that will allow you to achieve mortgage-free status.

What types of mortgages are available with no ERCs?

There are a number of options of mortgage types to look at if you don’t want to face redemption fees, some of which are easier to get than others:

• Standard variable rate mortgages: If you move onto this rate after the introductory offers end, you work outside of discounted product terms. This means while you’ll undoubtedly be paying higher interest rates, usually there are no ERCs attached.
• Tracker mortgages: Because you are at the mercy of fluctuating Bank of England base rates and your repayments will be in line with these, you’ll likely be taking a risk with how much interest you pay, but you’ll also have the ERC waived more easily.
• Fixed-rate mortgages: You can secure an interest rate for some years ahead, which comes with less leeway when getting out of it. That said, fixed-rate mortgages with no early repayment charges exist for the right borrowers, such as with Godiva and Leeds Building Society.
• Buy-to-let mortgages: Because of the nature of the way landlords work (buying and selling properties), demand is high for no ERC products. They exist, albeit with strict criteria, with options for interest-only trackers, discounted variable rates and fixed.
• Equity release mortgages: While less common, no ERC deals exist in this area.

How a broker can help you find the best mortgages with no ERCs

An experienced broker will act as an intermediary, which is beneficial for a number of reasons. At the start, they will help you understand whether a no ERC mortgage is worth the higher cost in the long run or determine whether the benefits of paying off your mortgage early will mitigate the penalty charge, usually between 1-5% of your loan.

If you decide to make an application, it will need to be strong. A good advisor will also help you with this, ultimately enhancing your chances of success.

Get in touch, and we’ll arrange for a broker we work with who has experience with these types of arrangements to contact you immediately.

Is the eligibility criteria stricter?

Yes, it can be tougher to qualify for such a mortgage, so lenders will want to be satisfied that you are an attractive borrower in a number of ways. Firstly, do you have a robust and sizable deposit to put down? The lower your loan-to-value (LTV) ratio, the better, and the better deal you’re likely to get. For example, a fixed-rate mortgage with no ERC is unlikely to exceed a 65-70% LTV anyway.

Your income and affordability will also be examined as evidence of your credit history. The stronger your financial position, the better deal you’re likely to receive.

Which lenders offer them?

Leeds Building Society launched a fixed rate mortgage with no ERC and unlimited overpayment capabilities, which the lender calls ‘Flexit’, alluding to the greater flexibility it offers homeowners. As does Kent Alliance, Newcastle Building Society has a discount mortgage with no ERCs attached. Axis Specialist Finance offers tracker mortgages without a redemption fee, and Barclays also has an existing customer reward tracker product without an ERC.

There are no set rules as to which lenders provide what when it comes to flexible repayment options, and while they’re very well hidden, they are out there in the marketplace.

Speak to a broker experienced in mortgages without ERCs

This feature within mortgages can be complex to secure and difficult to find, which is where a good, reliable and experienced broker comes into play, with expertise, knowledge and contacts within the industry.

Our matching service enables customers to get straight to a relevant expert from our network. The expert will understand your unique circumstances and be able to point you in the right direction with support and guaranteed five-star service. Call us today for a free initial chat on 0330 818 7026 or make an online enquiry.