What is the Arrangement Fee for a BTL Revolving Credit Facility?

What is the Arrangement Fee for a BTL Revolving Credit Facility?

As a UK property investor, managing cash flow efficiently is vital for growing your portfolio. When looking for flexible financing options, you may have asked: what is the arrangement fee for a btl revolving credit facility? Understanding these setup costs is crucial to determining whether this flexible, secured borrowing option is the right fit for your investment strategy.

A BTL revolving credit facility operates much like a property overdraft. It is secured as a second charge against an existing residential buy-to-let property, sitting directly behind your primary first-charge mortgage. This guide explains how arrangement fees are calculated, how they compare to alternative property finance options, and what other costs you should expect when setting up this flexible line of credit.

How the Arrangement Fee is Calculated

The arrangement fee for a BTL revolving credit facility is typically calculated as a percentage of the total facility limit. Most lenders in the UK market charge an arrangement fee ranging from 1% to 2% of the approved limit.

For example, if you are approved for a secured revolving credit facility of £100,000, a 1.5% arrangement fee would equal £1,500. This fee is generally charged when the facility is first established. Some lenders may allow you to add this fee to the balance of the facility, though doing so could increase the overall interest you pay over time.

The key benefit of this product is its revolving nature. Once you pay the initial setup fee, you can draw down funds, repay them, and draw them down again without paying a new arrangement fee each time. This makes it highly cost-effective for active landlords who require repeated access to capital for refurbishments, auction deposits, or bridging gaps during remortgages.

Comparing Arrangement Fees: Revolving Credit vs. Bridging Finance

To fully appreciate the value of a revolving credit facility, it helps to compare it to bridging finance, which is the traditional alternative landlords use for short-term capital.

Bridging loans are useful but can be expensive to set up repeatedly. A typical bridging loan carries an arrangement fee of 2% of the loan amount. If you are an active property investor purchasing multiple properties throughout the year, taking out three separate bridging loans would mean paying three separate arrangement fees. With a secured revolving credit facility, you pay the arrangement fee once and can reuse the facility multiple times, potentially saving thousands of pounds in setup costs.

It is also important to understand how interest works on these products:

• Bridging Loans: These can be open or closed. An open bridging loan has no fixed repayment date but must typically be repaid within 12 to 24 months, while a closed bridging loan has a strict, agreed-upon repayment date. Most bridging loans roll up interest, meaning monthly payments are not typical, but the interest accumulates and is repaid in full at the end.
• BTL Revolving Credit Facility: You only pay interest on the money you actually draw down, not the entire facility limit. If you have a £100,000 limit but only draw down £20,000 for a quick refurbishment, you only pay interest on that £20,000.

Revolving Credit vs. Remortgaging

Many landlords look to remortgage their existing properties to release equity for portfolio expansion. While remortgaging can offer competitive rates, it has distinct drawbacks compared to a second-charge revolving credit facility.

Remortgaging can take several months to complete, which is too slow if you need to secure a property quickly at auction. Furthermore, if you are currently locked into a low fixed-rate first-charge mortgage, remortgaging the entire property could trigger substantial early repayment charges. It also means giving up your low rate on the entire mortgage balance.

A BTL revolving credit facility sits behind your existing mortgage as a second charge. This means your competitive first-charge mortgage rate remains completely untouched. You pay one arrangement fee to set up the facility, and once arranged, funds can typically be drawn in 24 to 48 hours whenever an opportunity arises.

Other Setup Costs to Consider

While the arrangement fee is the primary cost, setting up a secured second-charge facility involves other standard property finance fees. These may include valuation fees to assess the value of your security property, and legal fees to register the second charge on the property’s title deeds.

Promise Money is an FCA-authorised broker (Ref: 681423). We work with a panel of specialist lenders to find the most suitable facility for your needs. A broker fee may be charged depending on the complexity of your application. Before a lender approves your facility, they will conduct a thorough credit search to assess your financial history.

If you want to check your credit history before applying, 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)

Real Landlord Scenarios: Maximising Your Facility

To see how the arrangement fee represents value, consider these common landlord scenarios:

Scenario A: The Auction Purchase. A landlord spots a property at auction. They draw down £40,000 from their revolving credit facility to cover the deposit instantly. After completing light refurbishments, they remortgage the property and pay back the £40,000 into the facility. They only paid the setup arrangement fee once, and the full facility is now ready for their next purchase.

Scenario B: Managing EPC Upgrades and Void Periods. To meet changing energy standards, a landlord needs to upgrade insulation and boilers. They draw funds from the revolving facility to pay contractors as the work progresses, keeping interest costs to a minimum. During a brief void period, they also draw a small amount to cover the first-charge mortgage payments, protecting their credit profile.

While this financial flexibility is highly beneficial, property investors must always manage their borrowing responsibly. 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 security property, increased interest rates, and additional charges from the lender.

People also asked

Is a BTL revolving credit facility an unsecured loan?

No, this is a secured financial product. It is secured as a second charge against an existing residential buy-to-let property, sitting behind your first-charge mortgage.

Do I pay an arrangement fee every time I draw down funds?

No, you typically only pay the arrangement fee once when the facility is first set up. You can then draw down and repay funds repeatedly without paying further setup fees.

Can I use this facility to cover mortgage payments during void periods?

Yes, many landlords use their revolving credit facility as a safety net to cover mortgage payments during void periods, ensuring they do not fall into arrears.

How quickly can I access funds once the revolving credit facility is set up?

Once the facility has been successfully arranged, you can typically draw down funds into your bank account within 24 to 48 hours.

What is the difference between an open and closed bridging loan?

An open bridging loan has no fixed repayment date but must typically be repaid within 12 to 24 months, while a closed bridging loan has a strict, agreed-upon date for repayment.

How to Apply for a BTL Revolving Credit Facility

If you are looking to secure a flexible line of credit to grow your property business, Promise Money can help. As an FCA-authorised broker, you can verify our registration on the Financial Conduct Authority register under reference 681423. We work closely with top UK lenders to help you find competitive terms on arrangement fees and interest rates.

To learn more about how a secured property overdraft could benefit your portfolio, visit our dedicated resources at promisemoney.co.uk/landlord-revolving-credit-100 or speak directly to one of our experienced advisors by calling 01902 585020 today.