Mortgages and Homes
Updated: Tue, 23 Apr 2013 01:00:00 GMT | By

The best mortgages with no early repayment charges

Many mortgages will charge you a fee to switch during the initial term. So is it worth paying a higher rate for the sake of avoiding any early repayment charges?

The best mortgages with no early repayment charges

The best mortgages with no early repayment charges

If you move to a new home, your lender will often let you remortgage with them without making you pay an early repayment charge on your old deal.

In all other circumstances, including if you want to shop around for the best new deal instead of sticking with your existing lender, you will probably have to pay a hefty penalty to leave your mortgage, if you're still within the initial deal period.

Two- or three-year deals typically come with penalties that cost you 1% or 2% of the entire amount that you pay off early. Pay off £100,000, then, and you're going to pay an extra £1,000 or £2,000 in penalties, and that's on top of the lender's standard exit fees of around £100 to £300.

The longer the introductory deal, and the more years you have left to go on it, the higher these penalties can be. In today's market, that especially applies for long-term fixed deals. I think there's a lot to like about the ten-year fixed deals currently available to you if your circumstances are right, but they could charge you with 6% of the mortgage, or even more, if you leave very early.

That's a £6,000 penalty for paying off a £100,000 mortgage early!

The advantages of penalty-free deals

Many mortgage customers are drawn to a deal almost entirely based on price, which is why they currently like the two-year fixed-rate deals that are extraordinarily cheap on a historical basis. However, this initial price can give you a mistaken sense of safety. It's easy to think that you won't lose too much if interest rates start rising in, say one year or 18 months; you'll still be able to fix then at a decent price, right?

This is a big assumption you're making though. No one knows when interest rates will rise again and, when they do, you might not be quick enough to get a half-decent fix unless you're free to switch immediately.

Remember, at the first whiff of higher interest rates, all your peers will have the same idea to fix. Lenders will quickly close existing deals and come out with more expensive ones. If there's a real panic, mortgage prices could be pushed up very quickly, even long before the Bank of England starts to change its own rates.

The latest mortgage rates

The price of penalty-free deals

That said, there's a price for everything. If you want the freedom to switch without a large early redemption penalty, you might have to pay a higher price for it. Here are some of the better deals that are more widely available.

Minimum 65% LTV variable mortgage or remortgage

Coventry Flexx for Term mortgage

  • 2.65% variable rate for whole term
  • Costs £1,000 in booking and arrangement fees
  • One free mortgage valuation

Not only does the above mortgage have no early repayment charges, it is the cheapest 65% LTV mortgage that is either variable or discounted for the whole term, although you can get cheaper ones that are for two or three years only.

Coventry is the third largest building society by size. However, that's still small compared to the big banks, and it's vastly smaller than the number one building society, Nationwide. This means you can expect it to be more selective who it lends to; many smaller building societies will only lend based on lower income multiples too.

A whole raft of small building societies, including Beverley, Marsden, Cumberland, Skipton (the fourth biggest), Darlington, Mansfield and Leeds, all offer cheap, two-year variable-rates or discounts at 65% LTV or higher that could work out at a similar price over two years, but they all have early repayment charges.

Minimum 75% LTV variable mortgage or remortgage

Coventry Flexx for Term mortgage

  • 2.85% variable rate for whole term
  • Costs £1,000 in booking and arrangement fees
  • One free mortgage valuation

Coventry does it again with the same mortgage, but at a more lenient LTV and a slightly higher interest rate. Again, this is the cheapest of its kind, even compared to mortgages that have early repayment charges.

The closest major player with the same mortgage criteria with no early repayment charge is First Direct. This costs 3.69% and a £500 fee, and it has the potential extra benefit of being an offset mortgage.

Minimum 80% LTV tracker mortgage or remortgage

HSBC Lifetime Tracker

  • 3.69% tracker rate for whole term
  • No booking or arrangement fee

HSBC and its subsidiary First Direct have been leading the mortgage market for some years now, so it's no surprise to find that it has another table-topping deal here. Current account customers might get a slightly better deal still.

Minimum 80% LTV fixed-rate mortgage or remortgage

Hinckley & Rugby Building Society Two-Year Fixed Rate Mortgage

  • 2.99% fixed rate for two years
  • £900 in booking and arrangement fees

In an extraordinary move, Hinckley & Rugby Building Society recently axed early repayment charges on all of its mortgages. It's very unusual for a fixed-rate deal to allow you to leave without a large penalty, especially a cheap two-year deal.

The cheapest comparable two-year deal – albeit with an early repayment charge – that I can find comes from West Brom Building Society, which charges 2.75% and between £500 and £650 in fees, depending on what sort of buyer you are.

The Post Office and Tesco Bank are the cheapest lenders with any kind of strong financial clout that have similar deals, although both charge a slightly higher rate and higher fees than Hinckley. Again, while charging for early repayments, too.

More options to consider

It's harder to find many deals over 80% LTV that don't charge you for early repayments, but most of those that do are precisely the same building societies and banks already mentioned above.

While I've shown you the cheapest I could find, you should take a look at a few more that come close, especially since you might find it harder to get a deal with a smaller building society. Runners up include Stafford Railway Building Society, Santander and ING Direct.

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