Can I use a revolving credit facility to fund legal costs on a property acquisition?

Can I use a revolving credit facility to fund legal costs on a property acquisition?

When you are expanding your property portfolio, the upfront costs can quickly accumulate. Beyond the actual purchase price of a new property, you must budget for stamp duty, valuation fees, broker fees, and significant legal expenses. Legal costs for conveyancing, drafting contracts, and conducting local authority searches must often be paid early in the transaction process. If your cash flow is tied up in other projects, you may wonder if a revolving credit facility is a viable way to cover these legal fees.

The short answer is yes. For UK landlords, a secured Buy-to-Let (BTL) revolving credit facility provides a flexible, fast, and highly effective way to fund legal costs on a property acquisition. This financial tool allows you to draw down the precise amount you need, pay it back when funds become available, and draw it down again for future transactions without having to apply for a new loan each time.

What is a secured Buy-to-Let revolving credit facility?

It is important to clarify what this product is, as it differs substantially from generic business funding. This is a secured facility, meaning it is registered as a second charge against an existing residential buy-to-let property within your portfolio. It sits directly behind your existing first-charge mortgage.

This product is not an unsecured business loan, a personal loan, or a standard credit card. Instead, it functions much like a flexible property overdraft. Once established, you have a pre-approved credit limit based on the equity in your existing property. You only pay interest on the money you actually draw down, not on the entire facility limit. This makes it an incredibly cost-effective option for short-term liquidity needs, such as paying solicitor retainers or search fees.

Why use revolving credit for property acquisition legal costs?

Acquiring investment properties is often a time-sensitive process. If you find a lucrative deal at an auction or through an estate agent, you need to act quickly. Solicitors generally require upfront payments to begin searches and initiate conveyancing. Waiting for a traditional mortgage to release equity can take several weeks or even months, which could cause you to miss out on the purchase.

A BTL revolving credit facility solves this speed issue. Once the facility is set up on your existing portfolio, you can typically draw down the required funds in 24 to 48 hours. This immediate access to cash ensures your legal team can start working on the acquisition straight away, keeping your purchase on schedule.

Furthermore, because you only pay interest on drawn funds, you can draw down the exact amount needed for your legal costs (for example, £5,000) and pay it back as soon as your rental income or other investment capital becomes available. This is far more efficient than taking out a large fixed-term loan and paying interest on money you do not currently need.

Comparing revolving credit to bridging loans and remortgaging

When landlords need quick access to capital for property acquisitions, they typically look at bridging finance or remortgaging. However, a secured revolving credit facility often presents a more flexible and affordable alternative.

Bridging finance vs. revolving credit

Bridging finance is a traditional tool for property buyers, but it can be rigid. Bridging loans generally fall into two categories: open bridging loans and closed bridging loans. An open bridging loan does not have a fixed repayment date, though it usually must be repaid within 12 months. A closed bridging loan has a clear, predefined exit date, such as a confirmed property sale or a pending remortgage.

Most bridging loans roll up interest, meaning you do not make monthly payments. Instead, the total interest is added to the loan balance and paid back in one lump sum at the end of the term. While this helps with monthly cash flow, bridging loans can carry high setup fees, administrative charges, and exit fees. If you default on a bridging loan, the implications are severe. Your property may be at risk if repayments are not made. Defaulting on your agreement could result in swift legal action, repossession, increased interest rates, and substantial additional charges.

In contrast, a secured revolving credit facility does not require you to set up a brand-new loan for every single transaction. You pay setup fees once, and you can use the facility repeatedly. This avoids the compounding administrative costs associated with taking out multiple short-term bridging loans for different acquisitions.

Remortgaging vs. revolving credit

Remortgaging your existing buy-to-let property to release equity is another common way to fund legal costs. However, remortgaging can be incredibly slow and may force you to give up an attractive, low-interest rate on your primary mortgage. You may also face expensive early repayment charges if you exit your current mortgage deal early.

Because a revolving credit facility sits as a second charge behind your current mortgage, you do not have to disturb your existing primary mortgage agreement. You preserve your current borrowing terms while unlocking the equity you need to fund your new acquisition’s legal fees.

How to prepare for a revolving credit application

Before applying for this secured facility, lenders will assess the value of your existing buy-to-let property, your outstanding mortgage balance, and your credit history. It is highly recommended to check your credit file before starting the application process to ensure all information is accurate.

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Having a clear overview of your credit situation helps financial brokers package your application effectively, ensuring a smoother approval process.

Real landlord scenarios: Using revolving credit in practice

To understand the practical benefits of this facility, consider these common landlord scenarios:

• The Property Auction: A landlord wins a residential property at an auction. They must pay a 10% deposit immediately and complete the purchase within 28 days. Legal work must begin on day one. By drawing from their revolving credit facility, the landlord covers the solicitor’s retainer and search fees within 24 hours, ensuring the tight 28-day deadline is successfully met.
• Refurbishments and EPC Upgrades: A landlord is purchasing a property that requires immediate energy efficiency upgrades to meet modern EPC standards. The legal restructuring of lease terms or planning permission applications requires quick solicitor payments. The landlord draws the legal costs from the revolving facility, completes the work, and repays the balance once the newly refurbished property starts generating rental income.
• Portfolio Expansion Deposits: An investor needs to fund both the deposit and the solicitor costs for a new acquisition. Rather than waiting for a slow equity release on another property, they draw down the required funds from their revolving credit facility, secure the new purchase, and later refinance the entire portfolio to reset the credit line.

How Promise Money can help

Navigating the secured lending landscape requires specialist knowledge. Promise Money is an FCA-authorised broker (Reference: 681423), not a direct lender. We work with a comprehensive panel of lenders to help UK landlords locate the most appropriate secured revolving credit facilities for their specific investment strategies.

For more detailed information on how to set up this property overdraft, visit our dedicated Promise Money Revolving Credit Hub. Alternatively, you can speak directly with one of our experienced advisers by calling 01902 585020 to discuss your portfolio requirements.

People also asked

Can I use a revolving credit facility for purposes other than legal fees?

Yes, you can typically use the funds for a wide range of investment purposes, including auction deposits, property refurbishment costs, EPC upgrades, bridging gaps during remortgages, or covering void periods between tenancies.

Is a buy-to-let revolving credit facility an unsecured loan?

No, this is a secured financial product. It is registered as a second charge against an existing residential buy-to-let property that you own, meaning your property is used as collateral for the facility.

Do I pay interest when I am not using the revolving credit line?

No, one of the primary benefits of this facility is that interest is only charged on the money you have actively drawn down, not on the unused portion of your credit limit.

Can I get a revolving credit facility if I have a mortgage on my property?

Yes, the facility is specifically designed to sit behind your existing first-charge mortgage as a second charge, allowing you to access equity without altering your current mortgage deal.

Where can I find independent advice about managing my property debt?

For impartial guidance on mortgages, secured loans, and debt management, you can read the official information provided on the MoneyHelper guide on home buying.

Summary of risks and considerations

While a secured revolving credit facility offers unmatched flexibility for active property developers, it is vital to balance these benefits against the potential risks. Because this is a secured loan, failure to make your required payments can result in serious financial difficulties.

Your property (including your home or investment property) may be at risk if you do not keep up repayments on a mortgage or any other loan secured on it. Always ensure you have a robust repayment strategy in place before drawing down funds to cover your property acquisition legal costs.