Can I use a revolving credit facility to fund the deposit on my next buy-to-let?

Can I use a revolving credit facility to fund the deposit on my next buy-to-let?

For active property investors in the UK, timing is everything. When a profitable new property hits the market, securing a deposit quickly is often the biggest obstacle. You may have substantial equity locked up in your current portfolio, but unlocking it fast enough to close a deal can be difficult. If you are asking yourself, “can i use a revolving credit facility to fund the deposit on my next buy-to-let?”, the answer is yes, provided you have sufficient equity in your existing properties.

A buy-to-let (BTL) revolving credit facility works like a secured property overdraft. Once it is set up, you can draw down funds to pay a deposit, repay the balance when you refinance, and then draw the money again for your next purchase without needing to reapply. This article explains how this secured financial tool works, how it compares to traditional options, and the risks you must consider.

How a BTL revolving credit facility works as a deposit source

Unlike standard business loans or credit cards, a BTL revolving credit facility is never unsecured. It is a secured second-charge facility. This means it sits behind your existing first-charge mortgage on a residential buy-to-let property. You are borrowing against the tangible equity you have already built up in your portfolio.

The major advantage of this setup is that interest is only charged on the money you actually draw down, not on the total facility limit. For example, if you have a facility limit of £150,000 but only draw £40,000 for an auction deposit, you only pay interest on that £40,000. Once arranged, funds can typically be drawn in 24 to 48 hours, giving you the speed needed to secure competitive deals.

Comparing revolving credit to bridging finance and remortgaging

When looking to release equity for a deposit, UK landlords typically choose between remortgaging and bridging finance. However, a revolving credit facility often provides a more flexible alternative.

Remortgaging can be an incredibly slow process. If you currently have an excellent historical fixed interest rate on your first-charge mortgage, remortgaging to release equity might force you to break that deal, resulting in high early repayment charges. A secured revolving credit facility leaves your primary mortgage completely untouched.

Bridging finance is another popular route, but it works differently. Bridging loans can be open or closed. An open bridging loan has no firm exit date but usually has a maximum term. A closed bridging loan has a clear, pre-agreed exit plan, such as a guaranteed property sale. Most bridging loans roll up interest, meaning monthly payments are not typical, and the entire balance is repaid at the end. While bridging is useful, you must apply for a new loan every single time you buy a property, which means paying repeated arrangement and legal fees. A revolving credit facility avoids this by letting you reuse the same limit repeatedly.

Real landlord scenarios for revolving credit

A BTL revolving credit facility is highly versatile. Here are three common scenarios where landlords use it:

• Property auction purchases: When buying at auction, you must pay a 10% deposit immediately. A revolving credit facility allows you to draw the deposit cash in under 48 hours to complete the purchase on time.
• Refurbishment and EPC upgrades: You can draw funds to pay for property renovations or energy efficiency upgrades. Once the work is complete and the property value increases, you can remortgage to repay the drawn funds.
• Managing void periods: If you face temporary void periods between tenancies, you can draw small amounts to cover your cash flow and repay them once rental income resumes.

Applying for a facility and checking your credit

Because this is a secured second-charge product, lenders will carefully assess your portfolio, income, and credit history before approving a limit. Checking your credit score beforehand can help you understand your options. 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)

Understanding the risks of secured borrowing

As with any secured financial product, you must carefully weigh the benefits against the risks. Your property may be at risk if repayments are not made. If you default on your payments, it could lead to legal action, repossession of the property, increased interest rates, and additional charges. Because this facility acts as a second charge, the property (your home or investment property) may be at risk if you do not keep up repayments.

Promise Money is an FCA-authorised broker (Ref: 681423), not a direct lender. We can help you compare available products to find a solution that fits your portfolio. To learn more, explore the Promise Money Landlord Revolving Credit hub, or call our expert team on 01902 585020. For impartial advice on managing property debt, you can also visit the government-backed MoneyHelper website.

People also asked

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

No, this is a secured second-charge facility. It is secured against your existing residential buy-to-let property, meaning it is not an unsecured business loan or a personal credit card.

How fast can I draw down cash once the facility is set up?

Once the facility is arranged, you can typically draw down the funds you need within 24 to 48 hours, offering rapid access to cash for urgent deposits.

Do I pay interest on the entire facility limit?

No, you only pay interest on the specific amounts you draw down. If you do not draw any funds, you will not pay interest on the outstanding limit.

Can I use this facility to pay for property refurbishments?

Yes, funding refurbishments, EPC upgrades, and property maintenance are very common uses for a BTL revolving credit facility.

What is the difference between open and closed bridging loans?

An open bridging loan does not have a fixed exit date but has a set term, while a closed bridging loan has a firm, pre-agreed exit plan, such as an active property sale already in progress.