Raj is downsizing. He owes £220,000 on a fixed rate with a 3% ERC and a 10% a year ERC-free overpayment allowance, none of it used this year. He ports but needs only £160,000 on the new home, so repays £60,000. What ERC applies?
Allowance = 10% × £220,000 = £22,000 free of charge. Excess = £60,000 − £22,000 = £38,000. ERC = 3% × £38,000 = £1,140. £1,800 ignores the allowance, £6,600 charges 3% on the whole balance, and £660 charges the allowance instead of the excess. The ERC must be a reasonable pre-estimate of the lender's costs (MCOB 12.3.1R); the allowance comes from the product terms.
Charging the ERC on the full amount repaid and ignoring the overpayment allowance.
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