Can a revolving credit facility replace bridging finance entirely?

Can a revolving credit facility replace bridging finance entirely?

For UK property investors and landlords, securing fast, flexible funding is often the key to growing a successful portfolio. Historically, when a landlord needed to act quickly—such as purchasing a property at auction or funding a rapid refurbishment—bridging finance was the standard solution. Today, a modern alternative is growing in popularity: the secured Buy-to-Let (BTL) revolving credit facility.

As a secured property overdraft, this facility allows landlords to draw, repay, and redraw funds against their existing portfolio. But can a revolving credit facility replace bridging finance entirely? To answer this, we must compare how both options work, look at real-world landlord scenarios, and evaluate the risks and costs of each.

Understanding the BTL Revolving Credit Facility

A BTL revolving credit facility is a secured financial product. It is secured as a second charge against residential buy-to-let property, sitting directly behind your existing first-charge BTL mortgage. It is not an unsecured business loan, a credit card, or a generic corporate line of credit. Instead, it acts as a dedicated property overdraft tailored specifically for property professionals.

Once the facility is arranged, you can draw funds as and when you need them. The major advantage is that interest is only charged on the drawn amounts, not the full facility limit. After you repay what you have borrowed, those funds become available to use again without the need to submit a new application. For landlords working with an FCA-authorised broker like Promise Money (Ref: 681423), once the facility is established, funds can typically be drawn in 24-48 hours.

How Bridging Finance Compares

To understand if revolving credit can replace bridging, we must look closely at how bridging loans operate. Bridging finance is a short-term funding option designed to “bridge” a temporary gap in capital. Unlike a revolving facility, bridging loans are generally single-use products that require a brand-new application every time you need capital.

Bridging loans are typically categorized into two types:

• Closed bridging loans: These have a fixed repayment date, usually because the borrower has a guaranteed exit strategy, such as a completed property sale or a confirmed remortgage.
• Open bridging loans: These do not have a firm repayment date, though they typically must be repaid within 12 to 24 months. Because they carry more uncertainty, they often come with higher interest rates.

Furthermore, most bridging loans roll up interest. This means you do not make monthly interest payments; instead, the interest accumulates and is paid in one lump sum when the loan is cleared. While this can help with monthly cash flow, it means you are paying interest on the entire borrowed amount from day one, regardless of how quickly you use the money.

It is vital to understand the implications of defaulting on these agreements. Your property may be at risk if repayments are not made. If you default on a bridging loan or a secured revolving credit facility, it could lead to swift legal action, repossession, increased interest rates, and significant additional charges.

Key Differences: Revolving Credit vs Bridging Finance

To determine if you can use a secured revolving credit facility as a complete replacement for bridging, we must compare their primary features side by side.

1. Cost and Interest Calculations

With bridging finance, you pay interest on the entire loan amount for the duration of the term. If you take out a £100,000 bridging loan for a refurbishment, you pay interest on that full £100,000 from the start. With a secured BTL revolving credit facility, if you have a limit of £100,000 but only draw down £20,000 for initial building materials, you only pay interest on that £20,000. This makes revolving credit highly cost-effective for staged projects.

2. Speed and Repeat Access

Arranging a bridging loan can take several weeks, requiring valuations, legal checks, and underwriting each time. A revolving credit facility takes time to set up initially, but once in place, it is ready to use. You can typically draw down funds within 24 to 48 hours. This makes it a much faster option for landlords who make frequent, repeat acquisitions.

3. Charges and Fees

Bridging loans often carry high arrangement fees, exit fees, and valuation costs. Because you have to reapply every time, these costs repeat. A revolving credit facility is set up once, helping you avoid multiple arrangement and valuation fees across several smaller projects.

Why Revolving Credit Cannot Replace Bridging Entirely

Despite the clear advantages of a BTL revolving credit facility, it cannot replace bridging finance in every single scenario. There are specific situations where bridging finance remains the only viable option:

• First-Charge Scenarios: A BTL revolving credit facility is secured as a second charge behind an existing first-charge mortgage. If you are buying a run-down property cash-free and there is no existing mortgage to sit behind, you will typically need a first-charge bridging loan to secure the property initially.
• Uninhabitable Properties: If a property is in extremely poor condition (e.g., it lacks a kitchen or bathroom), standard BTL lenders may not offer a mortgage on it. While you could secure a revolving credit facility against an existing property in your portfolio to buy the run-down one, you could not secure a standard second-charge revolving facility on the uninhabitable property itself.
• No Existing Portfolio: Revolving credit facilities are designed for established landlords with equity in existing residential BTL properties. First-time buyers or developers without an existing portfolio will generally have to rely on bridging finance.

Real Landlord Scenarios in Action

To see how these differences play out, let us look at some common situations UK property investors face.

Scenario A: The Auction Purchase

A landlord wins a residential property at auction and has 28 days to complete. If they rely on bridging finance, they must rush through a new application, valuation, and legal process, which can be stressful and risks missing the deadline. If they already have a BTL revolving credit facility secured against their existing portfolio, they can simply draw the deposit or full purchase amount within 48 hours, securing the property without stress.

Scenario B: Light Refurbishments and EPC Upgrades

A landlord needs to upgrade a property’s Energy Performance Certificate (EPC) rating to meet modern standards. The work will be done in stages over three months. Using a bridging loan would be expensive, as interest rolls up on the entire loan. By using a revolving credit facility, the landlord draws £5,000 for insulation, repays it when rent comes in, draws £10,000 for a new boiler, and repays that later. They only pay interest on the active balances, keeping costs low.

Scenario C: Void Period Cover

During a tenant transition, a landlord faces a two-month void period where no rent is coming in, but mortgage payments are still due. A bridging loan is far too expensive and complex for this. A revolving credit facility acts as a perfect temporary safety net, allowing the landlord to draw funds to cover the mortgage and repay it once a new tenant is in place.

Before You Apply: Credit Searches and Risk

Before applying for any secured facility, lenders will typically assess your credit file to ensure you meet their criteria. 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)

Remember that secured borrowing of any kind carries serious responsibilities. Whether you choose bridging finance or a revolving credit facility, your property may be at risk if repayments are not made. Failure to keep up with your payments could result in legal action, the repossession of your investment properties, increased interest rates, and additional administrative charges.

People also asked

Can I get a revolving credit facility on a property with no mortgage?

Typically, a BTL revolving credit facility is designed as a second charge that sits behind an existing first-charge mortgage. If your property is owned outright with no mortgage, lenders may still be able to structure a secured facility, but it would function as a first charge instead.

How long does it take to set up a revolving credit facility?

The initial setup of a secured revolving credit facility can take several weeks, as it requires legal checks and property valuations. However, once the facility is fully set up, you can typically draw down funds within 24 to 48 hours whenever you need them.

Are there monthly payments on a revolving credit facility?

Yes, unlike most bridging loans where interest is rolled up and paid at the end, a revolving credit facility typically requires you to pay the interest monthly on whatever balance you have drawn down.

Can I use a revolving credit facility for auction deposits?

Yes, this is one of the most common uses. Because you can draw down the funds within 24 to 48 hours once the facility is active, it is an ideal way to secure the deposit or the full purchase price of an auction property quickly.

Conclusion

While a BTL revolving credit facility is a game-changing tool for active UK property investors, it cannot replace bridging finance entirely. Bridging remains necessary for first-time developers, uninhabitable properties, and transactions requiring a first charge. However, for established landlords looking to fund refurbs, cover void periods, or buy at auction, revolving credit offers a highly flexible, fast, and cost-effective alternative to traditional bridging.

To understand the best options for your portfolio, you can read more on the MoneyHelper guide on bridging loans or contact a specialist broker.

If you would like to explore whether a secured revolving credit facility is right for your property portfolio, contact the expert team at Promise Money on 01902 585020 or visit our dedicated hub at promisemoney.co.uk/landlord-revolving-credit-100.