Is the interest rate on a revolving credit facility fixed or variable?

Is the interest rate on a revolving credit facility fixed or variable?

For UK buy-to-let landlords, managing cash flow is a key part of building a successful property portfolio. When you need quick access to capital for refurbishments, auction purchases, or covering void periods, a revolving credit facility can be an excellent tool. It works much like a property overdraft, allowing you to draw down funds, repay them, and draw them down again without needing to reapply each time.

One of the most common questions investors ask when looking at this product is: is the interest rate on a revolving credit facility fixed or variable? Knowing how your interest is calculated helps you plan your project costs and manage your monthly outgoings effectively.

Why these facilities typically feature variable rates

In almost all cases, the interest rate on a secured buy-to-let revolving credit facility is variable. Because this facility is designed to be highly flexible and can remain open for several years, lenders generally link the interest rate to a financial benchmark. This is typically the Bank of England base rate or the lender’s own variable base rate.

A variable rate means that the cost of your borrowing can fluctuate. If the benchmark rate rises, the interest rate on your drawn balance may increase. Conversely, if benchmark rates fall, your borrowing costs could decrease. Because you only pay interest on the money you have actually drawn down—and not on the total facility limit—a variable rate allows the lender to keep the facility active without locking in long-term rates that may become uncompetitive.

Fixed rates are rarely offered for revolving credit lines. Fixed rates are far more common for standard term loans where you borrow a single lump sum and pay it back over a set timeframe. With a revolving facility, the dynamic nature of drawing and repaying funds makes a variable rate structure the standard industry choice.

How interest is calculated on your drawn balance

A major benefit of a secured revolving credit facility is that you only pay interest on the money you use. For example, if you have a facility limit of £100,000 but only draw down £20,000 to fund a kitchen refurbishment, you will only pay interest on that £20,000.

This interest is typically calculated daily on the outstanding balance and billed monthly. If you pay back the £20,000 after two months, your interest charges stop immediately. The full £100,000 limit remains available for your next property project. This makes it a highly cost-effective option for short-term financing needs compared to taking out a large lump-sum loan where interest accumulates on the full amount from day one.

How revolving credit compares to bridging finance

When looking to secure quick funds, landlords often compare revolving credit to bridging finance. While both options offer fast access to capital, they structure interest and repayments very differently.

Bridging loans can be either open or closed. An open bridging loan has no fixed repayment date but typically must be settled within 12 to 24 months. A closed bridging loan has a specific, agreed-upon repayment date, usually backed by a clear exit strategy such as a property sale or a confirmed remortgage.

Importantly, most bridging loans do not require monthly payments. Instead, they typically roll up the interest, meaning the interest is added to the loan balance and paid off in one large lump sum at the end. This can make bridging loans expensive, as you pay interest on the interest. In contrast, a revolving credit facility requires you to pay the monthly interest on your drawn balance, which keeps the overall debt from compounding.

How revolving credit compares to remortgaging

Another alternative is remortgaging your existing buy-to-let properties to release equity. While remortgaging can secure a low, long-term fixed rate, it is often a slow and expensive process. It may take several weeks or even months to arrange, which is not ideal if you need to act quickly to secure a property at auction.

Furthermore, if you already have an attractive first-charge mortgage rate, remortgaging could force you to give up that rate and pay high early repayment charges. A revolving credit facility sits safely behind your existing first-charge mortgage as a second charge. This allows you to keep your primary mortgage intact while still unlocking the equity you need. Once the facility is set up, funds can typically be drawn in as little as 24 to 48 hours.

Real-life scenarios for property landlords

A secured revolving credit facility can be used in various practical ways to support your property business:

• Auction purchases: If you win a property at auction, you typically have 28 days to complete. You can use your revolving facility to pay the deposit and purchase costs instantly, then repay the facility once you secure long-term buy-to-let finance.
• Refurbishments and EPC upgrades: You can draw down funds to upgrade a property’s Energy Performance Certificate (EPC) rating or carry out light refurbishments, increasing the property’s value and rental yield.
• Void period cover: If a property sits empty between tenancies, you can draw from your facility to cover the first-charge mortgage payments, keeping your finances steady.

Understanding the risks of secured borrowing

Because a revolving credit facility is a secured second charge product, it carries serious financial responsibilities. It is not an unsecured business loan or a credit card. Your property may be at risk if repayments are not made. If you fail to meet your repayment obligations, the lender may take legal action, which could lead to the repossession of your investment property. It could also result in increased interest rates and additional charges, making the debt harder to clear.

Before taking out any secured finance, it is wise to review your current financial standing. Lenders will conduct a credit search to assess your eligibility. Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)

To ensure you make an informed decision, you can seek guidance from organisations like MoneyHelper, which offers free, impartial advice on debt and borrowing in the UK.

How Promise Money can help

Promise Money is an FCA-authorised broker (Ref: 681423)—not a lender. We work with a comprehensive panel of lenders to help UK landlords find the right secured financial products for their portfolios. If you are looking to arrange a flexible property overdraft to fund your next investment, our team can help you compare available rates and terms.

To discuss your options, you can read more details on our hub at promisemoney.co.uk/landlord-revolving-credit-100 or speak with one of our experienced advisers directly by calling 01902 585020.

People also asked

Is a revolving credit facility secured or unsecured?

The buy-to-let revolving credit facility offered through Promise Money is a secured second charge facility, meaning it is secured against your residential investment property rather than being an unsecured personal or business loan.

Can the interest rate on a revolving credit facility change?

Yes, because these facilities typically feature variable interest rates, your rate may go up or down depending on changes to the Bank of England base rate or the lender’s benchmark rate.

Do I pay interest on the entire credit limit?

No, you only pay interest on the money you have actively drawn down from the facility, meaning you will not pay interest on the remaining unused limit.

How does a revolving credit facility differ from a bridging loan?

A revolving credit facility lets you draw, repay, and redraw funds repeatedly with monthly interest payments, whereas bridging loans are single-use loans where interest is typically rolled up and paid at the end of the term.

What happens if I cannot pay back the drawn funds?

As this is a secured second charge facility, your property may be at risk if repayments are not made, which could result in additional charges, a damaged credit profile, and potential repossession.