On a £200,000 mortgage, the standard 10% annual overpayment allowance is £20,000 a year. Regular overpayments rarely get anywhere near it: even £500 a month adds up to £6,000 over a year, less than a third of that headroom. What tends to breach the cap is a one-off — an inheritance, a work bonus, or money freed up by downsizing — landing in a single payment that pushes past the limit and triggers an early repayment charge on the slice above it.
Here is how the cap works, what counts toward it, and the timing detail that decides whether a large lump sum costs you anything at all.
What the 10% cap is
Almost every fixed-rate mortgage in the UK ships with two features that pull in opposite directions. The first is an early repayment charge (ERC) — a percentage of the balance you pay if you clear or reduce the loan faster than the deal allows during the fixed period. The second is an annual overpayment allowance — usually 10% of the balance each year — that you can pay down without the ERC applying.
The allowance exists because a fixed-rate lender prices the deal on the assumption it will earn interest for the full fixed term. Allow unlimited early repayment and that assumption breaks; charge for every early pound and the product looks inflexible. The 10% allowance is the middle ground: room for normal overpaying, capped so the lender keeps most of the interest it expected.
On common loan sizes the headroom is wide:
| Loan balance | 10% annual allowance |
|---|---|
| £150,000 | £15,000 |
| £200,000 | £20,000 |
| £250,000 | £25,000 |
| £300,000 | £30,000 |
Against that, ordinary monthly overpayments barely register:
| Monthly overpayment | Over a year | Share of a £20,000 allowance |
|---|---|---|
| £100 | £1,200 | 6% |
| £200 | £2,400 | 12% |
| £500 | £6,000 | 30% |
| £1,000 | £12,000 | 60% |
So for most people paying a little extra each month, the cap is invisible. It becomes real only when a lump sum arrives.
What counts toward the cap — and what doesn't
The allowance is measured against voluntary payments to capital. That covers both regular monthly overpayments and one-off lump sums; they are added together across the allowance year. It does not include your contractual monthly payment — the amount the mortgage requires anyway — which sits outside the calculation entirely.
Two conventions vary between lenders and are worth checking on your own paperwork:
- Original balance vs outstanding balance. Some lenders set the 10% against the amount you first borrowed; others against the balance still outstanding at the start of each allowance year. On a £200,000 loan that has fallen to about £195,500 after a year, the difference is roughly £450 of headroom — small, but real.
- Calendar year vs mortgage anniversary. Some allowances reset on 1 January; others on the anniversary of completion. That reset date matters more than it looks, as the next section shows.
Going over: the early repayment charge
If a payment takes you past the allowance, the ERC applies only to the excess, not to the whole overpayment. ERC rates during a fix are commonly tiered — often higher in the early years and tapering toward the end. Early repayment charges are set out in your mortgage offer and, under the regulator's mortgage rules, are meant to reflect the lender's cost rather than act as an open-ended penalty.
Take a £30,000 lump sum in a year with a £20,000 allowance. The first £20,000 is free; £10,000 sits over the cap:
| ERC rate on the excess | Charge on the £10,000 over the cap |
|---|---|
| 1% | £100 |
| 2% | £200 |
| 3% | £300 |
| 5% | £500 |
The exact figure depends on where you are in the fixed term. The point is that the charge bites a defined slice, not the entire windfall.
The calendar quirk: two allowances, one reset apart
Because the allowance resets on a fixed date, a lump sum that straddles that date can fall into two separate allowance years. Splitting the same £30,000 around the reset sidesteps the charge that a single payment would trigger:
| Approach | Timing | Charge |
|---|---|---|
| £30,000 in one payment | All in one allowance year | ERC on the £10,000 excess |
| £30,000 split | £20,000 before the reset + £10,000 after | £0 |
This is simply how the annual limit is counted — each allowance year is separate — rather than a loophole. Whether it is available at all depends on your reset date and how close a windfall lands to it, both of which are stated in your mortgage offer.
How lenders differ
The 10% figure is a market norm, not a rule, and it is not universal:
| Product type | Typical annual allowance |
|---|---|
| Most large lenders' fixed rates | 10% of the balance |
| Some building societies and smaller lenders | 5% |
| Many tracker and discount products | Often unlimited |
| Once the fix ends (follow-on rate) | Usually no ERC, so no cap |
A handful of products advertise higher or unlimited allowances as a selling point. The only reliable source for your own limit is your mortgage offer or annual statement, where the published allowance is set out in full.
What overpaying within the cap is worth
Stay inside the allowance and every pound of overpayment saves the interest you would otherwise have paid on it — an effective, tax-free return equal to your mortgage rate. At the Bank of England's most recent quoted 75% loan-to-value five-year fixed rate of 4.32% (April 2026), that is a 4.32% saving. For the full picture of how the term shortens and interest falls, see what an extra £100, £200 or £500 a month actually saves; for how the same allowance can shrink an early repayment charge on a longer deal, see the overpayment allowance used as an ERC buy-back. It also helps to know what each £100,000 of mortgage costs a month and how big a deposit you need before deciding where spare cash goes.
Try it with your own numbers
The clearest way to see the cap in action is to model it. Put your deal into the mortgage comparison calculator, set a monthly or lump-sum overpayment, and watch the annual-cap field clip anything above the allowance — the tool shows both the interest saved and the months knocked off the term. To see the wider running costs behind a loan that size, try a postcode such as M1 1AE, or browse more buyer guides and see how we work with the data.
This is general information, not advice. Overpayment allowances, reset dates and early repayment charges vary between lenders and products — check your own mortgage offer, and speak to a qualified adviser before acting.