Getting a Mortgage with No Early Repayment Charge (ERC)

Find out how you can get a mortgage with no early repayment charges (ercs) and how a mortgage broker can help you

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Home Mortgage Application Getting A Mortgage With No Early Repayment Charge (ERC)
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: November 14, 2023

There could be a number of 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 balance of the loan 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 out there and are not uncommon in the UK, however it’s wise to be fully informed about what they might involve before committing to applying for one.

The reason ERCs exist is so that lenders can recoup lost interest over the original mortgage term that you would have paid, and to discourage borrowers from jumping from deal to deal. Banks want surety and stability, and so expect to be facing a pay-off of some kind, even with a no ERC mortgage, if you want to walk away from 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 type of products. They would be able to 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 usually only available via an intermediary, rather than one which is available to the general public.

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

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

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 of some kind that will allow you to achieve mortgage-free status.

What type 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 any introductory offers come to an end, you are working 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 easier.
  • Fixed rate mortgages: You have the benefit of securing an interest rate for some years ahead, which comes with less leeway when it comes to getting out of it. That said, for the right borrowers, fixed rate mortgages with no early repayment charges do exist, 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 do exist, albeit with strict criteria, with options for interest-only, trackers, discounted variable rates and fixeds.
  • Equity release mortgages: While less common, no ERC deals do exist in this area.

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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 to understand whether a no ERC mortgage is worth the higher cost in the long run, or determining whether the benefits of paying off your mortgage early will mitigate the penalty charge, which is usually between 1-5% of your loan.

If you decide to make an application, it will need to be strong, and 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 straight away.

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 looked at, and evidence of your credit history. The stronger financial position you’re in, 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 to homeowners. Newcastle Building Society has a discount mortgage with no ERCs attached, as does Kent Alliance. Axis Specialist Finance offers tracker mortgages without a redemption fee, and Barclays has an existing customer reward tracker product without an ERC too.

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, who will understand your unique circumstances and be able to point you in the right direction, with support and a guaranteed five-star service. Call us today for a free initial chat on 0808 189 2301 or make an online enquiry.

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FAQs

This depends on a number of things. Your own financial circumstances for a start, as well as how much interest you’ll likely pay for the rest of the mortgage term versus the penalty fee you’ll be faced with. Getting a broker to help you secure a no ERC mortgage in the first place eradicates this issue.

If you decide to take your mortgage with you, this is called ‘porting’, and you will only be charged if there is a delay between selling your home and buying a new one. If you are charged for this, many lenders will refund the fee if your sale goes through within a certain amount of time.

There are certain circumstances in which you won’t pay an ERC on a standard mortgage. One is following your death or that of your spouse or partner, or critical illness, providing necessary insurance is in place. You will also escape a fee if you switch to a new product with the same lender that completes within three months of your existing deal ending, and also if an endowment policy matures that then permits you to pay off your loan.

These days there are many lenders that permit overpayments, but to what degree varies widely. For example, Marsden Building Society allows 5% overpayments, Hanley Intermediaries permits 10%, NatWest allows 10% per 12 month period, Newbury Building Society allows 20% every year, and Together has no limit at all.

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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 Online Mortgage Advisor of course!

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Pete Mugleston

Mortgage Advisor, MD

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