Early Repayment Charges – How to avoid costly mistakes

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Early Repayment Charges – How to avoid costly mistakes

For landlords, refinancing is a core part of portfolio management. But one element that often catches people out is the early repayment charge (ERC). These penalties can cost thousands if you remortgage or redeem a loan during the fixed or discounted period. In 2026, with landlords refinancing more frequently to manage costs and release equity, understanding ERCs is essential to avoid costly mistakes.

What Are Early Repayment Charges?

An ERC is a fee charged by your lender if you repay your mortgage in full, switch lenders, or sometimes even make large overpayments during a fixed, tracker or discounted term. ERCs are usually a percentage of the outstanding loan balance, reducing each year of the deal.

Example: A five-year fixed mortgage with a £200,000 balance might carry ERCs of 5% in year one, 4% in year two, 3% in year three, and so on. Exiting in year one would cost £10,000, while waiting until year four would reduce the charge to £6,000.

When Do ERCs Apply?

• Remortgaging to another lender before the fixed period ends.
• Redeeming the loan in full after selling the property.
• Making overpayments above the lender’s allowance (often 10% per year).

ERCs usually end when the fixed or discounted deal ends, after which the mortgage reverts to the Standard Variable Rate (SVR).

How to Avoid Costly Mistakes

Landlords can take several steps to manage or avoid unnecessary ERCs:

• Time refinancing carefully – check your product expiry date and plan applications around it.
• Use ERC-free trackers – some trackers allow you to exit at any time without penalty.
• Consider “switch-to-fix” products – a few lenders allow you to start on a tracker and lock into a fix later without penalty.
• Use annual overpayment allowances – reduce balances gradually without triggering charges.
• Factor ERCs into decisions – sometimes paying the fee is worthwhile if rate savings outweigh the cost.

Case Study: Paying an ERC to Save Money

Scenario: A landlord held a £300,000 loan on a 6.5% fix with two years remaining. The ERC to exit was 3% (£9,000). A new five-year fix at 5.0% was available.

Calculation: Refinancing reduced annual interest by £4,500. Over two years, this created £9,000 of savings – equal to the ERC. From year three onwards, the landlord was £4,500 ahead each year.

Outcome: Despite the upfront cost, paying the ERC made financial sense in the long run.

Risks of Ignoring ERCs

• Unexpected costs – landlords who overlook ERCs may face five-figure bills when selling or refinancing.
• Cashflow disruption – paying a large ERC upfront can weaken liquidity.
• Portfolio impact – multiple ERCs across several properties can restrict refinancing flexibility.

Tips for Portfolio Landlords

• Stagger mortgage end dates to avoid multiple ERCs clashing at once.
• Model ERC costs against potential savings before refinancing.
• Plan property sales around ERC expiry dates where possible.
• Keep detailed notes of each loan’s ERC schedule in your portfolio spreadsheet.

Final Thoughts

ERCs are not designed to catch landlords out – they are part of how lenders price products. But failing to account for them can turn a smart refinancing move into an expensive mistake. By planning ahead, understanding product terms and weighing the costs against savings, landlords can avoid pitfalls and even turn ERCs into strategic opportunities.

Speak to Our Sponsor

Our sponsor helps landlords calculate ERC impacts, compare refinancing strategies and identify products with more flexible terms. They can show when it makes sense to pay an ERC and when it is better to wait.

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Publication date: Monday, 12 January 2026

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