Mortgage question
What is the 10% overpayment rule and how does it work?
Almost every UK fixed-rate mortgage lets you overpay 10% of the outstanding balance each year without triggering the Early Repayment Charge. On a £200,000 mortgage that’s £20,000 of ERC-free overpayment every year — used consistently it can shave 5-8 years off a 25-year term and tens of thousands in interest. Most lenders reset the allowance on 1 January or your mortgage anniversary, and both lump sums and regular monthly overpayments count toward the same 10% cap.
What is the 10% rule in plain English?
Your mortgage offer contains an Early Repayment Charge (ERC) that penalises you for repaying more than an allowed amount during the fixed-rate period. The “10% overpayment allowance” is the amount of the outstanding balance you can voluntarily pay off each year without the ERC kicking in. Cross it and you pay a penalty, usually 1-5% of the over-limit amount.
Worked example on a £200,000 balance in year 1:
- Annual 10% allowance: £20,000
- Overpayment in the year: £22,000
- ERC trigger amount: £2,000 (the excess)
- ERC at 3%: £60
Stay inside the 10% and you pay zero ERC.
Which lenders offer what?
The 10% figure is near-universal for mainstream residential mortgages in April 2026, but there are nuances:
| Lender | Annual allowance | Reset date |
|---|---|---|
| Halifax | 10% | 1 January |
| Nationwide | 10% | Mortgage anniversary |
| Santander | 10% | 1 January |
| HSBC | 10% | 1 January |
| Barclays | 10% | 1 January |
| Yorkshire BS | 10% | 1 January |
| First Direct | 10% | 1 January |
| NatWest | 10% | Mortgage anniversary |
| Some broker-only specials | 20% | Varies |
A handful of broker-access products (for example from Skipton, Coventry BS, Family BS) have 20% allowances or no ERC at all, aimed at borrowers who expect windfalls or bonuses. If you expect a big lump sum, flag this to a broker before you pick the product.
Lump sum or monthly — which is better?
Both count toward the same 10% cap, and both go directly against capital rather than interest. Monthly overpayments save slightly more interest because they reduce the balance earlier each month. A £1,000 lump sum in January saves more interest than £83 per month for 12 months — but £1,000 over the year through a monthly standing order is easier to stick to.
Most banking apps now let you set up a recurring monthly overpayment in under a minute. If you’re disciplined with lump sums, do those instead; if not, a standing order is the best nudge.
How much can 10% actually save?
On a 25-year, £200,000 mortgage at 5.20%, the standard monthly payment is around £1,193. Adding a £200 monthly overpayment (well inside the 10% cap):
| Strategy | Total interest paid | Term | Cash savings |
|---|---|---|---|
| No overpayment | £157,800 | 25 years | — |
| £200/mo overpayment | £119,400 | 18 years, 4 months | £38,400 saved, 6.7 yrs off |
| £400/mo overpayment | £96,200 | 14 years, 11 months | £61,600 saved, 10.1 yrs off |
Numbers will change with your rate, but the direction is consistent: every pound overpaid early is a pound of capital you never pay interest on again. Our overpayment calculator lets you model your own numbers.
Reduce term or reduce payment — which is it?
Most UK lenders default overpayments to “reduce the term” — your monthly payment stays the same, but you reach zero earlier. That saves more interest but is less flexible. Some lenders let you choose “reduce the payment” instead, which cuts the monthly amount but keeps the term — useful if you’re worried about a future income drop.
Call your lender and confirm which mode your overpayments are set to. Reducing the term is usually the better financial move when rates are above 5%.
The misconception worth clearing up
“The 10% resets when my fix ends” — no. The allowance resets on the date set out in your offer letter, usually 1 January or your mortgage anniversary. It has nothing to do with when your fix expires. That matters because if you’re considering a £40,000 overpayment in November, it may be better to split it: £20,000 in November (inside this year’s allowance) and £20,000 in January (inside next year’s) — zero ERC on the whole amount.
This is information, not regulated advice — check your own offer letter or ask your lender to confirm your exact allowance and reset date.
Sources
Information, not regulated advice. Mortgage Notes is not an FCA-authorised mortgage adviser. For a recommendation on your specific circumstances, speak to an FCA-authorised broker.