Can I use a revolving credit facility instead of bridging finance for a refurbishment?

Can I use a revolving credit facility instead of bridging finance for a refurbishment?

As a UK Buy-to-Let (BTL) property investor, maintaining your portfolio is crucial for yield. When a property requires work, finding the right funding is key. While landlords traditionally rely on bridging finance to cover refurbishments, a secured revolving credit facility may offer a more flexible, cost-effective alternative.

Promise Money is an FCA-authorised broker (Ref: 681423). In this guide, we will explore how a secured revolving credit facility compares to traditional bridging loans for refurbishment plans, highlighting the benefits and risks of each.

Understanding the Buy-to-Let Revolving Credit Facility

A Buy-to-Let revolving credit facility is a secured second-charge financial product, not an unsecured business loan, credit card, or generic business revolving credit. It is secured against an existing residential Buy-to-Let property, sitting behind your first-charge mortgage.

This facility works like a property overdraft. Once established, you receive a credit limit based on your property equity. You can draw down funds, repay them as cash flow allows, and draw them down again without reapplying. Once set up, funds can typically be drawn in 24 to 48 hours. Crucially, interest is only charged on the drawn amounts, not the full facility limit.

How Does Bridging Finance Compare?

Bridging finance is a short-term secured loan used to bridge financial gaps, often during auctions or rapid renovations. There are two main types:

• Closed Bridging Loans: These have a fixed exit date, usually because a property sale has already exchanged or a remortgage offer is firmly in place.
• Open Bridging Loans: These have no fixed exit date but carry a maximum term (typically 12 to 24 months). They are used when there is a clear repayment plan but the exact date is uncertain.

A key difference is that most bridging loans roll up interest. This means you do not make monthly payments; instead, interest compounds and is repaid in a lump sum at the end. While this helps cash flow, it means you pay interest on the entire loan amount from day one.

Revolving Credit vs. Bridging Finance for Refurbishments

When undertaking a property refurbishment, you rarely need all your cash immediately. Renovations are generally completed in stages: strip-out, structural works, plumbing, plastering, and final fitting. This is where a secured revolving credit facility holds a major advantage.

If you take out a £50,000 bridging loan, you pay interest on the full £50,000 from day one. With a secured revolving credit facility, you can draw down £10,000 for initial materials, paying interest only on that £10,000. Once that work is complete, you draw the next £15,000, and so on. This staged drawdown approach could significantly reduce your interest costs.

Additionally, bridging loans can carry expensive arrangement and exit fees each time you take one out. With a revolving credit facility, you arrange the facility once. You can use it for your current refurbishment, pay it back, and reuse it for your next project without paying fresh arrangement fees or waiting for underwriting.

Real Landlord Refurbishment Scenarios

To see how a secured revolving credit facility might work in practice, consider these common property investment scenarios:

Scenario 1: Meeting EPC Standards

A landlord needs £15,000 for EPC upgrades, such as insulation and a new boiler. Instead of taking an expensive bridging loan or remortgaging, they draw £15,000 from their secured revolving credit facility. Once a tenant moves in, they use the rental income to pay down the balance, keeping the facility open for future projects.

Scenario 2: Staged HMO Conversions

An investor is converting a property into an HMO over five months for £40,000. Instead of paying rolled-up interest on the full £40,000 from day one with a bridging loan, they draw funds in £10,000 stages as each phase is completed, minimizing interest costs.

Scenario 3: Void Periods and Cosmetic Repairs

During a void period, a landlord decides to fit a new kitchen and bathroom. They use the revolving credit facility to draw funds for the work and cover the monthly first-charge mortgage payments. Once a new tenant is secured, they repay the drawn balance from their reserves.

Understanding the Risks

While a secured revolving credit facility offers great flexibility, it carries the same risks as any secured loan. This is not an unsecured product; it is a second charge against your property assets.

Your property may be at risk if repayments are not made. If you do not keep up with repayments, you could face severe consequences. These include legal action, repossession, increased interest rates, and additional charges. Before proceeding with any secured borrowing, it is wise to understand your credit health.

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Before committing to a facility, it is helpful to research all options. Independent guidance on property debts can be found via the MoneyHelper guide on bridging finance, a free service set up by the UK government.

People also asked

Can I use a revolving credit facility for auction deposits?

Yes. Once your secured revolving credit facility is arranged, you can typically draw down funds within 24 to 48 hours, making it an excellent tool for securing auction deposits.

Is a revolving credit facility cheaper than bridging finance?

It can be, particularly for staged refurbishments. You only pay interest on the money you actually draw down, whereas bridging finance charges interest on the entire loan sum from day one.

Is this an unsecured business loan?

No. This is a secured facility, meaning it is secured as a second charge against your residential Buy-to-Let property and sits behind your existing first-charge mortgage.

How quickly can I access funds once arranged?

While setting up the facility involves valuations and underwriting, once it is active, you can typically draw funds into your bank account within 24 to 48 hours.

Conclusion: Is Revolving Credit Right for Your Refurbishment?

Whether you should use a secured revolving credit facility instead of bridging finance for a refurbishment depends on your project’s nature and timeline. While bridging finance is highly effective for rapid, high-value, lump-sum purchases, a secured revolving credit facility provides a flexible, ongoing alternative that can serve your portfolio across multiple renovation projects.

Promise Money is an FCA-authorised broker (Ref: 681423). To discuss how this secured “property overdraft” could assist with your next refurbishment, visit our hub at promisemoney.co.uk/landlord-revolving-credit-100 or contact our advisory team on 01902 585020.