What is the UK Mortgage Overpayment Cap?

Summary

This article explains how mortgage overpayments work during fixed-rate periods in the UK, including early repayment charges, lender rules, and common limitations. It is for general information only.

Most UK mortgage lenders allow you to overpay

your mortgage — but only up to a limit. This is known as the mortgage overpayment cap, and exceeding it can trigger early repayment charges (ERCs).

Understanding how this cap works is essential if you want to reduce interest, shorten your mortgage term, and avoid unnecessary fees.

In this guide, we explain what the UK mortgage overpayment cap is, how it’s calculated, and how to use it effectively.

What is a mortgage overpayment cap?

The mortgage overpayment cap is the maximum amount you can overpay each year without paying a penalty, while you’re within a fixed or discounted rate period.

For most UK mortgages, this cap is:

10% of your outstanding mortgage balance per year

This allowance usually resets each mortgage year, not each calendar year.

If you overpay more than the cap, lenders typically charge an early repayment charge (ERC) — often between 1% and 5% of the excess amount.

How does the UK mortgage overpayment cap work?

Let’s look at a simple example:

• Outstanding mortgage balance: £250,000

• Overpayment cap: 10%

• Maximum penalty-free overpayment this year: £25,000

You can make this overpayment:

• Monthly

• As a lump sum

• Or as a combination of both

As long as your total overpayments in that mortgage year stay within £25,000, you should avoid penalties.

👉 You can use our free mortgage overpayment calculator to see how different overpayment amounts affect your interest and term.

Is the overpayment cap based on the original loan or current balance?

This is a common point of confusion.

In most cases, the overpayment cap is based on:

• ✅ Your outstanding balance at the start of the mortgage year

• ❌ Not the original loan amount

However, lenders differ, so it’s important to check:

• Your mortgage offer

• Your lender’s terms and conditions

Some lenders also calculate the cap based on:

• The balance at the start of a fixed-rate period

• Or the balance on a specific anniversary date

Does the overpayment cap reset each year?

Yes — for most UK mortgages, the overpayment cap resets every mortgage year.

That means:

• Unused allowance usually cannot be carried forward

• Each year you get a new 10% allowance

If you’re planning large overpayments, timing matters.

This is where planning tools become useful, as spreading overpayments efficiently can maximise interest savings without triggering charges.

What happens if you exceed the mortgage overpayment cap?

If you overpay more than your allowance:

• The lender may charge an early repayment charge (ERC)

• The charge typically applies only to the excess amount

• ERCs usually reduce the closer you get to the end of a fixed rate

For example:

• Overpay £30,000 with a £25,000 cap

• Excess = £5,000

• ERC at 3% = £150 fee

In some cases, paying the ERC may still be worth it — but this depends on interest savings and timing.

👉 This is where a full mortgage planner can help you compare scenarios over time.

Can you overpay more than 10% without penalty?

Sometimes — but it depends on the lender and circumstances.

You may be able to exceed the cap without charges if:

• You are on a tracker or standard variable rate

• Your fixed rate has ended

• The lender allows higher limits (rare, but possible)

Always confirm with your lender before making large payments.

Monthly overpayments vs lump sums and the cap

Both monthly overpayments and lump sums usually count toward your annual cap.

For example:

• £500 per month = £6,000 per year

• £10,000 lump sum later in the year

• Total = £16,000 counted toward the cap

Understanding this interaction is crucial when deciding how to overpay.

👉 You can explore this in more detail using the Advanced Mortgage Planner preview, which shows how different overpayment strategies affect your mortgage over time.

Is it worth overpaying up to the cap?

In many cases, yes — but it depends on:

• Your interest rate

• Other debts

• Emergency savings

• Alternative investment returns

Overpaying up to the cap often provides:

• Guaranteed return equal to your mortgage rate

• Lower total interest

• Earlier mortgage-free date

However, it’s important to model the impact properly before committing.

How to plan overpayments without triggering charges

To stay within your allowance:

1. Check your lender’s overpayment rules

2. Track cumulative overpayments across the year

3. Spread payments where possible

4. Review your allowance annually

Using a calculator or planner can help ensure you don’t accidentally exceed the cap.

👉 Start by trying our free UK mortgage overpayment calculator to see how overpayments affect your mortgage.

Final thoughts

The UK mortgage overpayment cap is designed to give borrowers flexibility — but only if you understand how it works.

Used correctly, it allows you to:

• Reduce interest

• Shorten your mortgage

• Stay penalty-free

Used incorrectly, it can result in unnecessary fees.

Taking a few minutes to plan your overpayments properly can save thousands of pounds over the life of your mortgage.