What is the difference between a revolving credit facility and a credit card?

What is the difference between a revolving credit facility and a credit card?

For UK landlords and property investors, maintaining access to liquid capital is essential for growing a successful portfolio. When a property opportunity arises, such as a discounted house at auction or a quick refurbishment project, you need reliable financing. Many investors wonder: what is the difference between a revolving credit facility and a credit card?

At first glance, both financial products appear to work in the same way. They both offer a pre-approved limit, allow you to draw down funds as needed, pay back what you owe, and draw down again. However, the mechanism, scale, security, and costs associated with each are completely different. For property investors, understanding these distinctions is crucial to making the right financial decisions for your portfolio.

The Core Difference: Security and Scale

The primary difference between a standard credit card and a property-specific revolving credit facility lies in security. A credit card is almost always an unsecured form of borrowing. This means the lender does not take a charge over any of your assets, such as your home or investment properties. Because the lender takes on more risk, credit cards typically have much lower borrowing limits and higher interest rates.

In contrast, a Buy-to-Let (BTL) revolving credit facility, such as the one arranged by Promise Money, is a secured financial product. It is secured as a second charge against a residential buy-to-let property, sitting behind your existing first-charge mortgage. Because it is secured against a high-value asset, lenders can offer significantly larger credit limits, sometimes running into hundreds of thousands of pounds. This makes it a highly effective tool for property investment activities that a credit card simply cannot support.

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How a Buy-to-Let Revolving Credit Facility Works

A BTL revolving credit facility works like a dedicated property overdraft. Once the facility is set up and secured against one or more of your buy-to-let properties, you do not have to draw down the entire amount. Instead, you can draw down only what you need, when you need it.

Here are the key operational features of a secured BTL revolving credit facility:

• Interest on Drawn Funds Only: You only pay interest on the money you actually use, not the entire approved facility limit. If you have a £100,000 facility but only draw £20,000 for a refurbishment, you only pay interest on that £20,000.
• Fast Drawdowns: Once the initial security is established, drawing down further funds is typically fast, often taking only 24 to 48 hours. This allows you to act quickly when opportunities arise.
• Reusable Limit: As you repay the borrowed balance, your available limit goes back up, allowing you to fund future projects without the need to submit a completely new application.

How Landlords Use a Secured Revolving Credit Facility

While a credit card might be useful for buying small items like light fixtures or paint, a secured revolving credit facility is designed for major capital expenditure. Here are several real-world scenarios where property investors benefit from a secured facility:

1. Refurbishment Projects and EPC Upgrades

If you purchase a property that requires a full cosmetic refurbishment or structural repairs to meet modern standards, a credit card’s limit may fall short. A BTL revolving credit facility provides the capital to fund extensive refurbishments or energy performance certificate (EPC) upgrades, allowing you to increase the property’s value and rental yield.

2. Auction Deposits and Purchases

Properties sold at auction typically require a 10% deposit on the day of the auction, with the remaining 90% balance due within 28 days. Traditional mortgages can take months to arrange. A secured revolving credit facility can provide the necessary cash within 24 to 48 hours, giving you the purchasing power of a cash buyer.

3. Covering Void Periods and Cash Flow Gaps

Even the most successful landlords occasionally face tenant void periods or unexpected maintenance issues, such as a broken boiler. Having a revolving credit facility in place acts as a safety net, allowing you to cover mortgage payments and repair costs until a new tenant is secured.

4. Bridging Gaps During Remortgaging

When you are in the process of remortgaging a property to release equity, delays can happen. A secured revolving facility can act as a temporary bridge, allowing you to secure your next investment property while you wait for your main mortgage funds to clear.

Comparing the Alternatives: Bridging Finance vs. Remortgaging

When looking for property funding, landlords usually compare revolving credit facilities to traditional bridging finance or remortgaging. Each option serves a distinct purpose.

Bridging loans are typically short-term, single-use loans. They can be structured as either open bridging loans (where there is no fixed repayment date, though they usually have a maximum term) or closed bridging loans (where there is a clear, documented exit strategy, such as a pending sale). Most bridging loans roll up interest, meaning monthly payments are not typical; instead, the accumulated interest is paid at the end of the term. While useful, bridging loans can be expensive to set up repeatedly for multiple projects.

Remortgaging to release equity is another popular choice, but it can take weeks or months to arrange and may tie you into a new, long-term deal with early repayment charges. A BTL revolving credit facility provides a middle ground: it offers the flexibility and speed of bridging finance but remains open as a reusable tool, preventing you from having to pay new arrangement fees every time you need capital.

Important Risks to Consider

While a secured revolving credit facility offers great flexibility, it is a serious financial commitment. Because the facility sits as a second charge behind your primary mortgage, your property may be at risk if repayments are not made. Failing to meet your repayment obligations could lead to serious consequences, including legal action, repossession of your investment property, increased interest rates, and additional penalty charges.

As an FCA-authorised broker (Reference: 681423), Promise Money helps landlords navigate the market to find appropriate secured facilities. However, we are a broker, not a lender, and it is vital to assess whether you can comfortably manage the repayments before proceeding.

People also asked

Is a revolving credit facility better than a credit card for landlords?

For large capital projects like refurbishments or auction purchases, a secured revolving credit facility is generally better because it offers significantly higher credit limits and lower interest rates than an unsecured credit card. However, for minor everyday expenses, a credit card may be more convenient.

How fast can I access funds with a secured revolving credit facility?

Once the initial second-charge facility has been set up against your property, subsequent drawdowns are typically very fast, often taking between 24 and 48 hours to arrive in your bank account.

What happens if I cannot repay my revolving credit facility?

The property (your home or investment property) may be at risk if you do not keep up repayments. Outstanding debts could result in additional penalty fees, increased interest rates, legal action, and ultimately the repossession of your secured asset.

Can I have a revolving credit facility alongside my existing mortgage?

Yes, a BTL revolving credit facility is secured as a second charge, which means it sits directly behind your existing first-charge mortgage without affecting your current mortgage rate or terms.

How does interest work on a secured revolving credit facility?

Interest is only calculated and charged on the specific amount you draw down, not on the total credit limit approved. Once you repay the drawn amount, the interest charges stop on that portion of the facility.

Conclusion

Understanding the difference between a revolving credit facility and a credit card is essential for any UK property investor looking to scale their business. While credit cards are useful for smaller, everyday costs, they lack the funding capacity required for serious property development and acquisition. A secured Buy-to-Let revolving credit facility acts as a powerful property overdraft, offering the speed of bridging finance with the long-term flexibility of a reusable credit line.

If you are looking to unlock the equity in your property portfolio to fund your next project, contact the experts at Promise Money. As an FCA-authorised broker, we can help you find the right secured second-charge facility for your investment goals. Speak to our team today on 01902 585020 or visit our dedicated hub at promisemoney.co.uk/landlord-revolving-credit-100 to learn more.