What an early repayment charge is
The Financial Conduct Authority (FCA) defines an early repayment charge as a charge made by the mortgage lender when you repay all or part of the loan before a date or event written into the contract. Citizens Advice calls the same thing a redemption fee and says it applies when you end a fixed term mortgage before the agreed date.
In practice, that means the charge is tied to your deal. If you sell while a fixed or discounted rate is still running, the loan is repaid early, and the lender may charge for it. If you sell after the deal has ended, there is normally no early repayment charge to pay for ending the deal early, though you should check your own paperwork for when it stops.
What the rules say about the size of the charge
The FCA's rulebook for mortgages (MCOB 12.3) sets out some limits for regulated mortgage contracts:
- the charge must be able to be expressed as a cash value, not left vague;
- it must be a reasonable pre-estimate of the lender's costs of the early repayment;
- before you take the mortgage, the lender must disclose the maximum charge in the illustration and offer documents.
So your mortgage offer is the first place to look. It should state the maximum early repayment charge and the point at which it stops applying.
Many lenders calculate the charge as a percentage of the amount being repaid, but methods vary by lender and product, so do not assume. Here is the arithmetic on round numbers, purely to show how it works:
| Amount being repaid (illustration) | Charge rate (illustration) | Charge |
|---|---|---|
| £150,000 | 1% | £1,500 |
| £150,000 | 2% | £3,000 |
| £150,000 | 3% | £4,500 |
These rates are not typical charges. Your own figure comes from your lender.
Step 1: find the figure with a redemption statement
A redemption statement is your lender's figure for what it would take to clear the mortgage on a stated date. It is the number your solicitor works from, and it is more reliable than the balance on your last annual statement.
- Check your mortgage offer and any rate-change letters for the early repayment terms and the end date of your deal.
- Contact your lender and ask for a redemption statement for the date you expect to complete. Ask them to show any early repayment charge separately.
- Ask whether the figure will change if completion moves, and for how long the statement stays valid.
- Keep a copy. Your solicitor will ask for an up-to-date figure nearer completion.
Citizens Advice gives the same basic advice: before agreeing to any change, ask the lender whether a charge applies and how much it will be.
Step 2: ask whether the charge can be reduced or avoided
You cannot argue a lawful charge away, but you can ask the right questions before you list the property. Your lender's terms decide the answers, so these are things to ask, not things to assume:
- When does the deal end? Citizens Advice says to make sure you know when your fixed rate period ends. If the end date is close, the timing of your sale may matter.
- Can the mortgage move with you? Some mortgages can be taken to a new home, which is often called porting. Ask whether yours can, and whether you would need to pass the lender's checks again.
- Is there an overpayment allowance? Some deals let you pay off a set amount each year without a charge. Ask whether yours does, and what counts.
- Is there a charge on a partial repayment? The FCA definition covers repaying part of a loan as well as all of it.
If you plan to buy another home, ask your lender about these before you commit to a sale date. A mortgage broker or a conveyancing solicitor can also help.
Step 3: check whether you need the lender's permission
If the sale price will not cover your mortgage and any other secured debts, Citizens Advice says you need your lender's permission to sell. If the lender refuses, you can complain to the Financial Ombudsman Service or apply to court for an order for sale.
If the sale will clear the mortgage in full, the question is simpler: the debt is repaid from the sale proceeds. Either way, tell your lender early and keep paying the mortgage until completion. Citizens Advice notes that you remain responsible for mortgage payments, insurance and other costs until the sale completes.
Step 4: work out your equity before you list
Equity is what is left after the mortgage and the costs of selling come out of the sale price. Here is a placeholder example. Replace every figure with your own.
| Line | Illustration |
|---|---|
| Estimated sale price | £250,000 |
| Mortgage balance on the redemption statement | £180,000 |
| Early repayment charge | £3,600 |
| Other selling costs (agent, legal and so on) | £6,000 |
| Left over for you | £60,400 |
The final line is the only one that matters to you, and it can be lower than you expect once the early repayment charge is included. Our equity calculator does this sum with your own numbers, and the cost of selling guide lists the other costs to include. For the sale price, our free valuation gives a sourced range rather than a single guess.
What happens at completion
On completion day the buyer's money goes to your solicitor, as Citizens Advice describes. In a typical sale, your solicitor arranges for the lender to be repaid out of that money. The lender then removes its charge from the title: GOV.UK explains that the lender sends a discharge to HM Land Registry, and the register is updated once that is processed.
Whatever is left after the mortgage, any early repayment charge and your selling costs is paid to you. Ask your solicitor for a breakdown of the figures before completion day. If they differ from your estimate, ask why.
Common mistakes
- Using your latest annual statement instead of a redemption statement.
- Forgetting that the figure is for a date, and that a delayed completion can change it.
- Leaving the early repayment charge out of the equity sum.
- Not telling the lender until after you have accepted an offer.
This page is general information, not financial or legal advice. Speak to a conveyancing solicitor or a mortgage adviser about your own mortgage.