How Do I Calculate Whether a Revolving Credit Facility Makes Financial Sense for My Portfolio?

How Do I Calculate Whether a Revolving Credit Facility Makes Financial Sense for My Portfolio?

For UK buy-to-let landlords, managing cash flow across multiple properties can be a constant challenge. Whether you are funding property refurbishments, securing deals at auction, or bridging the gap during a remortgage, accessing capital quickly is essential. Traditionally, property investors have relied on bridging finance or remortgaging to release equity. However, a secured Buy-to-Let (BTL) revolving credit facility has emerged as a highly flexible alternative.

This product works like a property overdraft, sitting as a second charge behind your existing first-charge mortgage. Once arranged, it allows you to draw down funds, repay them, and draw them down again without having to reapply. But how do you calculate if this specialized financial product makes sense for your property portfolio? To make an informed decision, you must evaluate setup costs, interest calculations, and speed against traditional alternatives.

Understanding the Secured BTL Revolving Credit Facility

Before diving into the calculations, it is important to clarify what this product is. This is a secured facility, backed by a second charge on a residential buy-to-let property. It is not an unsecured business loan, a personal credit card, or a generic business line of credit. Because it is secured against property, the borrowing limits can be significantly higher, and the interest rates are typically more competitive than unsecured borrowing options.

Promise Money is an FCA-authorised broker (Ref: 681423), not a lender. We help landlords compare various options in the market to find a facility that suits their portfolio needs. When considering this option, remember that your property may be at risk if repayments are not made. If you default on a secured second-charge facility, this could lead to serious consequences including legal action, repossession, increased interest rates, and additional charges.

Revolving Credit vs. Bridging Finance and Remortgaging

To determine if a revolving credit facility makes financial sense, you must compare it directly with the two strategies landlords most frequently use: bridging finance and remortgaging.

1. Bridging Finance

Bridging loans are short-term loans designed to “bridge” a temporary funding gap. They are commonly used for auction purchases or rapid property light refurbishments. Bridging loans can be categorised as either open or closed:

• Closed bridging loans: These have a fixed, highly feasible repayment date, such as a confirmed remortgage or property sale date.
• Open bridging loans: These have no set end date but typically must be repaid within 12 to 24 months.

Unlike standard mortgages, most bridging loans roll up interest. This means you do not make monthly interest payments; instead, the interest accumulates and is repaid in a lump sum at the end of the term. While this helps with monthly cash flow, it means the total debt grows quickly. Crucially, every time you take out a new bridging loan, you must pay fresh arrangement fees, valuation fees, and legal fees.

2. Remortgaging

Remortgaging to release equity is a common way to raise capital. However, if you recently locked in a low fixed rate, remortgaging your entire property to release £50,000 could mean swapping your entire mortgage balance to a much higher current interest rate. You may also face substantial Early Repayment Charges (ERCs) from your existing lender.

The Formula: How to Calculate the Financial Sense of Revolving Credit

To calculate whether a revolving credit facility makes financial sense for your portfolio, you need to look at the total cost of capital across a 12-to-24-month investment cycle. Here is the step-by-step calculation method:

Step 1: Calculate the Multiple-Transaction Costs

If you plan to buy and refurbish three properties over the next two years, look at the transaction fees of using bridging finance three times versus one revolving credit facility.

• Bridging Cost: (Arrangement Fee + Legal Fees + Valuation Fees) x 3 transactions.
• Revolving Credit Cost: One-off Setup Fee + Legal Fees x 1 transaction.

Because the revolving facility remains open, you can typically draw down funds within 24 to 48 hours for the second and third projects without paying new arrangement or valuation fees.

Step 2: Calculate the Interest on “Drawn” vs. “Undrawn” Funds

With a traditional bridging loan or remortgage, you pay interest on the entire borrowed sum from day one. With a revolving credit facility, you only pay interest on the money you have actually drawn down.

For example, if you have a £150,000 revolving facility but only draw down £30,000 for an initial refurbishment, you only pay interest on that £30,000. The remaining £120,000 incurs no interest charges, though some lenders may charge a small commitment fee on the undrawn portion. Compare this to a £150,000 bridging loan where you pay interest on the full amount, even while £120,000 sits idle in your bank account.

Step 3: Factor in Opportunity Cost and Speed

How much is it worth to you to secure an auction property at a 20% discount? Traditional bridging loans can take weeks to arrange. Once your revolving credit facility is active, you can access the cash in 24 to 48 hours. This agility has a clear financial value that should be factored into your calculations.

When lenders assess your suitability for these facilities, they will look at your credit history across your portfolio. Before starting any application, it is wise to understand your current standing. 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)

A Working Scenario: The Landlord’s Math

Let’s look at a realistic scenario. Landlord Sarah needs to upgrade several properties to meet new EPC regulations and fund a deposit for an auction property. She requires £100,000 in total, but she needs it in stages: £30,000 now, £40,000 in six months, and £30,000 in nine months. Each draw will be repaid within three months using rental profits and refinance proceeds.

Option A: Three Separate Bridging Loans

• Three sets of arrangement fees (typically 2% each): £2,000 total.
• Three sets of valuation and legal fees: approx. £4,500.
• Interest charged on the full loan amounts for the duration.
• Total Estimated Setup Fees: £6,500.

Option B: One BTL Revolving Credit Facility

• One setup fee: approx. £2,000.
• One set of legal fees: approx. £1,500.
• Interest only charged on the exact days the £30,000, £40,000, and £30,000 are drawn down.
• Total Estimated Setup Fees: £3,500.

In this scenario, a revolving credit facility saves Sarah £3,000 in setup fees alone, before even accounting for the interest saved by not borrowing the full £100,000 from day one.

People also asked

What is the difference between open and closed bridging finance?

A closed bridging loan has a confirmed, fixed repayment date, such as a completed property sale, whereas an open bridging loan has no set exit date but must typically be repaid within 12 to 24 months.

Is a BTL revolving credit facility secured or unsecured?

It is a fully secured financial facility, registered as a second charge against an existing residential buy-to-let property behind your main mortgage.

How quickly can I access funds from an active revolving credit facility?

Once the initial second-charge facility is approved and set up, individual drawdowns can typically be transferred to your bank account within 24 to 48 hours.

Are there restrictions on how I can use the drawn funds?

Generally, the funds can be used for any legitimate business or property purpose, such as auction deposits, refurbishments, covering void periods, or funding EPC upgrades.

Is a Revolving Credit Facility Right for You?

Calculating whether a revolving credit facility makes sense depends heavily on how frequently you plan to deploy capital. If you only need a single lump sum for a long-term project, a traditional bridging loan or a standard second-charge mortgage may be more appropriate. However, if your business model involves buying, refurbishing, and refinancing multiple properties, the savings on repeated setup fees can make a revolving facility incredibly cost-effective.

As with all secured borrowing, careful planning is vital. You can find more detailed guides and tools on our Promise Money Landlord Revolving Credit Hub. To speak directly with one of our experienced property finance advisers, call Promise Money today on 01902 585020.