Mortgage Declined Because ERC Affected Loan Size
Mortgage declined because ERC affected loan size is a situation that often catches borrowers off guard when remortgaging or moving home during a fixed-rate period. Even where income, credit history, and property value are all acceptable, an early repayment charge can materially change how much can be borrowed.
This guide explains how early repayment charges affect loan size, why lenders factor them into affordability and loan-to-value calculations, and what options may still be available.
What Is an Early Repayment Charge (ERC)?
An early repayment charge is a fee applied by a lender when a mortgage is repaid before the end of a fixed, tracker, or discounted period.
ERCs are designed to compensate the lender for lost interest and are usually calculated as a percentage of the outstanding mortgage balance.
How ERCs are typically structured
• A percentage of the remaining balance
• Often higher in earlier years of a fixed rate
• Reducing over time until the deal ends
Depending on timing, an ERC can run into thousands, significantly affecting available funds.
Why ERCs Matter in Mortgage Applications
When remortgaging or purchasing a new property, lenders look at the full financial picture.
If an ERC is payable, it reduces the equity available or increases the total borrowing required. This directly affects loan size calculations.
In many cases, the ERC is treated as a cost that must be funded alongside the mortgage.
How ERCs Reduce Loan Size
The impact of an ERC is often indirect but significant.
If you owe £200,000 on your current mortgage and face a 4% ERC, that £8,000 charge must be covered either from savings or borrowing.
Common outcomes
• Less equity available for deposit
• Higher effective loan-to-value
• Increased borrowing requirement
• Reduced affordability headroom
This is why a mortgage can be declined even when headline figures appear to work.
Why Lenders Decline Applications When ERCs Are Involved
Lenders assess risk using strict thresholds.
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Mortgage declined because ERC affected loan size usually happens when the ERC pushes the application outside acceptable limits.
Typical decline triggers
• Loan-to-value exceeds lender maximum after ERC
• Borrowing required increases beyond affordability limits
• Deposit is eroded by paying the ERC
• Combined costs exceed stress-tested affordability
The ERC itself is not the issue. Its effect on the numbers is.
Does This Affect Remortgages More Than Purchases?
ERC-related declines are most common in remortgages.
When switching lenders during a fixed rate, the ERC must be settled in full. If the new loan needs to absorb that cost, affordability tightens.
In purchases, ERCs can still matter if equity from a sale is reduced.
Why Borrowers Are Often Surprised
Many borrowers assume ERCs are just a fee to pay and do not affect borrowing decisions.
In reality, lenders treat ERCs as a financial commitment that reduces net equity or increases debt.
This mismatch in expectation is a common cause of last-minute declines.
How ERCs Affect Loan-to-Value Calculations
Loan-to-value is calculated using the mortgage amount against the property value.
If an ERC reduces the deposit or increases borrowing, LTV rises.
Why this matters
• Higher LTVs have fewer lender options
• Rates worsen at higher LTV bands
• Some lenders hard-stop above set limits
Even a small ERC can tip an application into the next LTV band.
Can a Mortgage Be Declined Even If You Can Pay the ERC?
Yes.
Even if you can technically afford the ERC, lenders assess whether the overall structure remains within policy.
If savings are used to clear the ERC, the deposit may fall below requirements. If borrowing increases, affordability may fail.
What If the ERC Is Added to the Mortgage?
Some borrowers assume the ERC can simply be added to the new mortgage.
Most lenders do not ignore this cost. Adding it increases loan size and can breach affordability or LTV limits.
This is a common reason applications that worked initially fail at final assessment.
Does Staying With the Same Lender Help?
Sometimes.
Product transfers
Product transfers often avoid ERCs entirely if you remain with the same lender and do not change the loan balance.
This can preserve affordability and avoid the issue altogether.
Full remortgages
Switching lender usually triggers the ERC. This is where problems arise.
What Options Are Available After a Decline?
A mortgage declined because ERC affected loan size does not always mean plans must stop completely.
Option one: wait until the ERC period ends
Delaying the remortgage until the fixed rate expires removes the charge and can restore affordability.
Option two: reduce borrowing
Lowering the loan amount can offset the ERC impact and bring figures back within limits.
Option three: increase deposit or equity
Using additional savings to preserve deposit levels can help maintain LTV thresholds.
Option four: consider lender flexibility
Some lenders are more accommodating where ERCs are involved, particularly at lower LTVs.
You can learn more about this in our guide on specialist mortgage lenders.
How ERCs Interact With Other Decline Factors
ERCs rarely cause declines in isolation.
They often combine with:
• Higher interest rate stress tests
• Reduced property valuations
• Existing credit commitments
• Tight affordability margins
Together, these can push an application over the edge.
Why Timing Is Critical With ERCs
The timing of an application can be the difference between approval and decline.
Applying months before an ERC ends may be costly, while waiting could unlock better terms and broader lender choice.
Understanding the ERC schedule is crucial.
How to Avoid ERC-Related Declines in Future
Forward planning is essential.
Steps that may help
• Check ERC amounts before applying
• Model borrowing with and without ERCs
• Avoid assumptions about adding costs to loans
• Consider product transfers where appropriate
We explain remortgage planning in more detail in our guide on how remortgages are assessed.
Common Misunderstandings About ERCs
• “The ERC doesn’t affect affordability”
• “I can just add it to the mortgage”
• “Equity always covers it”
In practice, ERCs directly influence loan size and lender decisions.
Key Takeaways
• Mortgage declined because ERC affected loan size is numbers-driven
• ERCs reduce usable equity or increase borrowing
• Loan-to-value and affordability are both impacted
• Timing and lender choice are critical
If you want personalised advice, speaking to a regulated mortgage adviser may help clarify next steps.
This guide provides general information only. Personalised mortgage advice should always come from a regulated mortgage adviser.
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Important information: Mortgage Bridge provides information only and acts as a mortgage introducer. We do not provide mortgage advice or make lender recommendations. We can introduce you to an FCA-regulated mortgage adviser who can provide personalised mortgage advice.