Mortgage Overpayment 10% Rule Explained
The 10% rule is a common overpayment cap imposed by UK mortgage lenders. Understanding how it works helps you maximize overpayments while avoiding costly early repayment charges.
What Is the 10% Rule?
The 10% rule allows most UK mortgage borrowers to overpay up to 10% of their outstanding mortgage balance each year without incurring early repayment charges (ERCs).
This cap typically applies during fixed-rate, tracker, or discounted mortgage deals. Once you're on your lender's standard variable rate (SVR), you can usually overpay without limits.
How Is the 10% Calculated?
Each bank does this differently, but it is usually either based on the remaining balance or the original balance of your mortgage.
Original Balance
Each year, your lender will allow you to overpay 10% of the original balance of your mortgage, allowing you to overpay more over time.
Example
If your original mortgage balance is £200,000, you can overpay up to £20,000 (10% of £200,000) in that mortgage year without penalty.
The following year, you can still overpay up to £20,000.
Remaining Balance
Each year, your lender will allow you to overpay 10% of the remaining balance of your mortgage, meaning that the 10% you can overpay will be a smaller amount each year.
Example
If your outstanding balance on January 1st is £200,000, you can overpay up to £20,000 (10% of £200,000) in that mortgage year without penalty.
The following year, if your balance has reduced to £185,000, your allowance becomes £18,500 (10% of £185,000).
Model Your Overpayments
Our Mortgage Overpayment Calculator lets you model either original or remaining balance overpayments up to (and beyond) the 10% rule to see exactly how much you can save.
What Are Early Repayment Charges?
Early repayment charges (ERCs) are fees lenders charge when you repay more than the allowed overpayment amount during a fixed or discounted rate period.
ERCs are typically:
- A percentage of the amount overpaid above the allowance (e.g., 2-5%)
- Higher in the early years of your deal, decreasing over time
- Applied to the excess amount, not your entire overpayment
Example
Your balance is £200,000, so your 10% allowance is £20,000. You overpay £25,000.
The excess is £5,000. If your ERC is 3%, you'd pay £150 in charges (3% of £5,000). The first £20,000 is penalty-free.
When Does the 10% Rule Apply?
Fixed-Rate Mortgages
The 10% cap almost always applies during fixed-rate periods. Check your mortgage offer for your specific allowance.
Tracker and Discounted Mortgages
These products typically include a 10% overpayment allowance, though terms vary.
Standard Variable Rate (SVR)
Once your initial deal ends and you move to SVR, most lenders allow unlimited overpayments without penalty.
Variations in Overpayment Limits
While 10% is standard, some lenders offer different allowances:
- More generous: Some lenders allow 15% or 20% overpayments
- Less generous: A few lenders cap overpayments at 5%
- No overpayments: Some specialist mortgages don't allow overpayments during the deal period
Always check your mortgage terms or contact your lender to confirm your specific overpayment allowance.
Overpayment Strategies Within the 10% Rule
1. Use Your Full Allowance
If you can afford it, maximize your annual 10% overpayment to save the most interest.
2. Annual Lump Sums
Many borrowers use bonuses, tax refunds, or inheritance to make one large annual overpayment up to the 10% limit.
3. Monthly Overpayments
Spreading overpayments throughout the year can be easier to manage and saves slightly more interest since the balance reduces more quickly.
What If You Want to Overpay More Than 10%?
If you want to overpay more than your allowance, consider these options:
Wait Until Your Deal Ends
Overpayments are usually unrestricted once you move to SVR. You can make a large lump sum payment penalty-free before remortgaging.
Accept the ERC
In some cases, paying the ERC might still be worthwhile if your interest savings outweigh the charge. Calculate carefully before doing this.
Offset Mortgages
Some offset mortgages allow you to link savings to your mortgage, reducing interest without technically overpaying. This avoids ERCs while still saving interest.
Common Questions
Is the 10% per calendar year or per mortgage year?
Lenders can use either. Check your terms to confirm.
What happens if I overpay by mistake?
Contact your lender immediately. They may allow you to reverse the excess or spread it across multiple years to avoid charges.
Can I carry over unused allowance?
No. If you don't use your full 10% allowance in one year, it does not roll over to the next year.
Key Takeaways
- Most UK mortgages allow 10% annual overpayments without penalty
- Whether this is based on your original or remaining balance is up to your lender - check your terms to confirm
- Early repayment charges apply only to amounts exceeding the allowance
- Unlimited overpayments are usually allowed once you move to SVR
Calculate Your Overpayment Strategy
See how much you could save while staying within your overpayment limits.