How Do Portfolio Landlords Use a Revolving Credit Facility to Buy at Auction?

How Do Portfolio Landlords Use a Revolving Credit Facility to Buy at Auction?

UK property auctions are highly popular among portfolio landlords looking to expand their portfolios. They offer discounted properties, fixer-uppers, and rapid transactions. However, the speed of these transactions is a double-edged sword. Once the auctioneer’s hammer falls, you enter a legally binding contract. You typically must pay a 10% deposit immediately and complete the remaining 90% of the purchase within 20 to 28 days.

For busy landlords, securing traditional finance in this window is almost impossible. A standard buy-to-let mortgage can take six to eight weeks to arrange, which is far too slow. If you fail to complete on time, you risk losing your deposit and facing significant financial penalties. To understand how do portfolio landlords use a revolving credit facility to buy at auction, we must look at how this flexible financial tool overcomes these strict time constraints.

What is a Buy-to-Let Revolving Credit Facility?

A Buy-to-Let (BTL) revolving credit facility is a modern alternative designed specifically for active property investors. It works similarly to a property overdraft. Once established, you can draw down funds, repay them, and draw them down again as needed without submitting a new application each time.

Crucially, this is a secured facility. It is not an unsecured business loan, a personal loan, or a credit card. Instead, the facility is secured as a second charge against your existing residential buy-to-let properties. It sits comfortably behind your primary first-charge mortgage, allowing you to unlock equity without disturbing your current low-interest mortgage rates.

Because it is a secured product, the borrowing limits are typically much higher than unsecured options, aligning with the capital-heavy needs of property acquisition. The primary advantage is that interest is only charged on the money you actually draw down, not on the total facility limit. Once the legal work is completed during the initial setup, future drawdowns can typically be processed in just 24 to 48 hours.

Promise Money is an FCA-authorised broker (Ref: 681423) — not a lender. We help landlords compare and secure these facilities from specialist lenders to suit their investment strategies.

Step-by-Step: Buying at Auction with Revolving Credit

Let us look at a practical scenario to see how portfolio landlords utilize this tool. Imagine an investor who owns five buy-to-let properties. He sets up a £300,000 revolving credit facility secured against his portfolio.

• Step 1: Finding the Property: The landlord attends a local property auction and spots a run-down terrace house with a guide price of £120,000. He estimates it needs £30,000 of refurbishment to reach its full rental potential.
• Step 2: Winning the Auction: He wins the bid at £130,000. He must immediately pay a £13,000 deposit. He draws this from his revolving credit facility, with the funds arriving in his account almost instantly.
• Step 3: Completing the Purchase: To meet the strict 28-day completion deadline, he draws down the remaining £117,000 from his facility. The purchase completes seamlessly on time.
• Step 4: Refurbishment: He draws an additional £30,000 to cover the cost of materials and labor. While the work is being completed, he only pays interest on the £160,000 he has drawn, while the remaining £140,000 of his facility remains untouched and interest-free.
• Step 5: Refinancing and Recycling: Once the property is renovated and valued at a higher price, he secures a standard first-charge BTL mortgage on the new property. He uses these funds to repay the £160,000 back into his revolving credit facility. The limit is restored to £300,000, ready for his next auction purchase.

How It Compares to Bridging Finance and Remortgaging

Historically, landlords have relied on bridging finance or remortgaging to fund auction purchases. Here is how a revolving credit facility compares to these traditional options:

Bridging Finance

Bridging loans are short-term loans designed to “bridge” a funding gap. They can be structured as either open or closed bridging loans. An open bridging loan has no fixed end date but usually must be repaid within a set timeframe (such as 12 months). A closed bridging loan has a clear, fixed exit date, such as a scheduled property sale.

Unlike standard loans, most bridging loans roll up interest. This means you do not make monthly payments; instead, the interest accumulates and is paid in full when the loan is cleared. While this helps cash flow during the project, the setup process can be slow and expensive. If you buy multiple properties at auction, you must apply for a new bridging loan each time, paying separate arrangement fees, valuation fees, and legal costs. A revolving credit facility eliminates this repetition. Once set up, you can use it repeatedly without paying setup fees every time.

Remortgaging to Release Equity

Some landlords choose to remortgage their existing properties to release cash for auction deposits. While this can provide cheap capital, the process typically takes several weeks or months, making it too slow for immediate auction deadlines. Furthermore, if you remortgage, you may have to break a highly competitive fixed-rate mortgage, resulting in expensive early repayment charges. A second-charge revolving credit facility sits behind your existing mortgage, preserving your original low-interest rate.

Key Risks, Credit Searches, and Responsibilities

While a revolving credit facility offers immense flexibility, it is a serious financial commitment. Because it is a secured loan, your property may be at risk if repayments are not made. Failing to meet repayments could result in legal action, repossession of your investment property, increased interest rates, and additional charges.

Unlike bridging finance where interest is often rolled up, revolving credit facilities typically require regular interest payments on the drawn balance, so you must ensure your cash flow can support these payments during refurbishments or void periods.

Before applying, lenders will run a comprehensive assessment of your financial health, including a credit check. Understanding your credit profile before you apply is highly recommended. 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)

Having a clear exit strategy is essential. You should know exactly how you plan to repay the drawn funds, whether through refinancing onto a traditional mortgage, using cash flow, or selling a property. For impartial advice on property finance and borrowing safely, you can check the guidance on the MoneyHelper website, a free service set up by the UK government.

How to Set Up Your Property Overdraft

If you are a portfolio landlord looking to secure auction bargains, planning ahead is vital. Setting up a revolving credit facility before you enter the auction room gives you the buying power of a cash buyer.

At Promise Money, we specialise in helping UK landlords structure their portfolios to unlock maximum liquidity. Our team can guide you through the security requirements, valuation processes, and lender criteria. To discuss your options, contact Promise Money today on 01902 585020 or explore our dedicated resource hub at promisemoney.co.uk/landlord-revolving-credit-100.

People also asked

What is a buy-to-let revolving credit facility?

It is a secured second-charge facility that works like a property overdraft, allowing landlords to draw, repay, and redraw funds against the equity of their existing buy-to-let portfolio.

Is a revolving credit facility secured or unsecured?

This is strictly a secured facility, meaning it is registered as a second charge against your residential buy-to-let properties, and your assets may be at risk if you fail to maintain repayments.

How quickly can I draw money from a revolving credit facility?

Once the initial facility is legally established, subsequent drawdowns are highly efficient and can typically be deposited into your bank account within 24 to 48 hours.

Can I use a revolving credit facility to cover void periods?

Yes, because you only pay interest on the amounts you draw down, landlords frequently use these facilities to cover temporary mortgage payments during tenant void periods or EPC upgrade refurbishments.

What happens if I cannot repay my revolving credit balance?

If repayments are not made, your property may be at risk of repossession, and you may also face legal action, increased interest rates, and additional charges from the lender.