Is a revolving credit facility cheaper than remortgaging to release equity?

Is a revolving credit facility cheaper than remortgaging to release equity?

For UK property investors and buy-to-let (BTL) landlords, releasing equity is a vital step when expanding a portfolio. Whether you need to fund a property refurbishment, secure a great deal at an auction, or cover unexpected void periods, having access to cash is essential. Traditionally, landlords chose to remortgage their properties to release equity. Today, a secured BTL revolving credit facility provides a highly flexible alternative.

In this article, we compare the costs, benefits, and risks of both options to help you decide which is best for your portfolio.

What is a BTL Revolving Credit Facility?

A Buy-to-Let revolving credit facility is a secured financial product. Unlike unsecured business loans or credit cards, it is secured as a second charge against a residential buy-to-let property. This means the facility sits behind your existing first-charge mortgage, leaving your original mortgage rate and terms completely untouched.

This product works like a property overdraft. Once arranged, you can draw down funds, repay them, and draw them again without reapplying. Crucially, interest is only charged on the drawn amounts, not on the full limit. Once set up, you can typically draw down funds within 24 to 48 hours. Read more on our secured revolving credit hub.

Comparing the Costs: Revolving Credit vs Remortgaging

To determine which option is cheaper, you must evaluate your current first-charge mortgage rate and your borrowing timeframe.

When a Secured Revolving Credit Facility is Cheaper

If you have a low-interest fixed-rate mortgage, remortgaging to release equity can be expensive. Breaking your current deal triggers Early Repayment Charges (ERCs) of 1% to 5%. You would also have to refinance your entire mortgage balance at today’s higher interest rates.

Keeping your cheap first mortgage intact and securing a second-charge revolving credit facility is often much cheaper. If you have a £100,000 facility but only need £20,000 for immediate refurbishments, you only pay interest on that £20,000. Once repaid, interest charges stop immediately.

When Remortgaging to Release Equity is Cheaper

Remortgaging may be cheaper if you need a large, long-term lump sum (five to ten years). First-charge mortgages generally offer lower interest rates than second-charge facilities. If your current mortgage is on a high variable rate, remortgaging allows you to secure a new deal while releasing equity.

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Revolving Credit vs Bridging Finance

Bridging finance is popular for short-term gaps, but it is often expensive. Most bridging loans roll up interest, meaning you pay everything at the end rather than monthly. They also carry high setup and exit fees. If you choose an open bridging loan (no fixed repayment date) and your exit strategy is delayed, rolled-up interest quickly escalates.

Bridging loans are either open or closed. If repayments are not made, your property may be at risk. Defaulting on a bridging loan or secured facility could lead to legal action, repossession, increased interest rates, and additional charges.

A BTL revolving credit facility is a flexible alternative. You do not pay arrangement fees every time you need cash. Once arranged, you can use the facility repeatedly to bridge gaps during remortgages.

Real Landlord Scenarios

Here is how a revolving credit facility can save landlords money in real-world situations:

Scenario 1: Auction Purchases

Auction buys require a 10% deposit on the day and the remaining 90% within 28 days. Remortgaging can take months, risking your deposit. A revolving credit facility allows you to draw funds in 24 to 48 hours to complete. You can then arrange a standard BTL mortgage later to repay the facility.

Scenario 2: EPC Upgrades and Void Periods

Upgrading a property’s EPC rating can cost thousands, during which the property may sit empty. A revolving credit facility allows you to draw funds for upgrades and cover mortgage payments during the void. Once a tenant moves in, you use the rental income to pay down the balance, minimising interest.

Risks, Broker Advice, and Regulation

While a BTL revolving credit facility provides excellent flexibility, it is crucial to remember that it is a secured debt. Your property may be at risk if repayments are not made. Failing to keep up with your repayments could result in the repossession of your property, legal action, a damaged credit rating, and additional charges.

Promise Money is an FCA-authorised broker (Ref: 681423), not a lender. Our role is to help you compare the market and find the most cost-effective secured finance products for your business. For free, unbiased advice on managing your debts and financial planning, you can visit MoneyHelper, a free financial guidance service backed by the UK government.

If you want to find out if a secured revolving credit facility is the right choice for your property portfolio, please call our specialist team at Promise Money on 01902 585020.

People also asked

Is a revolving credit facility secured or unsecured?

A BTL revolving credit facility is a secured financial product. It is registered as a second charge against your residential buy-to-let investment property, meaning your property may be at risk if you do not keep up repayments.

How quickly can I draw funds from a BTL revolving credit facility?

Once the initial facility has been fully arranged and approved by the lender, you can typically request and receive your drawdowns in your bank account within 24 to 48 hours.

Can I use a revolving credit facility to buy property at auction?

Yes, this is a highly common use. The speed of drawdown (typically 24 to 48 hours) makes it an excellent tool for paying auction deposits and meeting tight 28-day completion deadlines.

Do I have to pay interest on the entire credit limit?

No, you only pay interest on the money you actually draw down from the facility. The remaining unused limit does not accrue any interest charges until you decide to use it.

What is the difference between a revolving credit facility and a bridging loan?

A bridging loan is a one-off, short-term loan where interest often rolls up, whereas a revolving credit facility works like a property overdraft, allowing you to draw, repay, and draw again without reapplying.