Why there is a charge
The lender fixes your rate for life by borrowing long-term money itself. If you repay in year three, it is left with that funding and no loan to put it against. The early repayment charge (ERC) compensates it. Some lenders also use it simply to discourage switching.
The two kinds
Fixed (or "defined") ERCs are a percentage of the amount repaid that falls over time: for example 10% in years one to five, 5% in years six to ten, then nothing; or 8% falling by 1% a year to zero. You know exactly what you would pay at any point. Most plans sold now work this way.
Gilt-linked ERCs depend on the yield on UK government bonds at the time you repay. If gilt yields have fallen since you took the plan, the charge can be large (often capped at 20% or 25% of the amount repaid); if they have risen, it can be nothing. You cannot know in advance. Older plans, and a few current ones, use this method. Advisers should explain which kind you are getting; ask.
What is usually waived
- Repayment on death or moving into long-term care of the last borrower: no charge, ever.
- Repayment within three years of one of a couple dying or going into care ("compassionate window"): no charge on many plans.
- Moving house and taking the plan with you: no charge. If the new home is worth less and you have to repay part, some plans charge on the part repaid; others waive it.
- Downsizing after a set period (often five years) to a property the lender will not accept: "downsizing protection" waives the charge on some plans.
- Voluntary partial repayments up to the plan's limit (typically 10% of the original loan a year): no charge.
What it means in practice
If there is a real chance you will repay in full within eight to ten years, whether because you might sell up, inherit, or simply want out, choose a plan with a short, fixed ERC schedule even if the rate is a fraction higher. If you are certain it will run for life, the ERC matters less than the rate. Either way, the illustration shows the charge at each year; look at the worst case, not the best.
A gilt-linked ERC on a large loan can reach £30,000 or more if yields move against you. It is the single most common nasty surprise in equity release. Know which kind you have.
A note on the numbers. Rates, loan-to-value limits, fees and timescales are typical figures at the time of writing (2026) and vary between lenders and with your age, health and property. This is information, not advice. Equity release must be arranged through an FCA-authorised adviser, who will give you a personalised illustration before you commit to anything.
Quick answers
Can I overpay without a charge?
Yes, up to the plan's annual limit, commonly 10% of the original loan. Above that, the ERC applies to the excess.
Can I switch to a cheaper plan later?
Yes, and if rates fall it can be worth it, but only once the ERC on the old plan is low enough. An adviser can run the sums; it is a common piece of work.
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