Revolving credit facilities

A revolving credit mortgage, also called a revolving credit facility (RCF) secured on property, is a lending facility with an agreed limit that the borrower can draw, repay and draw again during the facility term. Interest is paid only on the balance drawn, and the lender holds security over property throughout. Bridging lenders offer it as a revolving bridging facility for repeat purchases, and some commercial lenders and private banks offer it against buy to let portfolios and commercial property, so one approval funds a series of purchases or capital needs.

A revolving credit facility (RCF) usually carries an arrangement fee on the limit, a non-utilisation or commitment fee on the undrawn balance, and valuation and legal costs on each property drawn against, alongside interest on the drawn funds. Some facilities add renewal, exit or monitoring fees. Each lender sets the amounts and the basis, so the total cost depends on the fee structure and on how much of the limit you use. A facility kept mostly undrawn costs mainly fees, and one kept largely drawn costs mainly interest.

Interest on a revolving credit mortgage is charged only on the balance drawn. On commercial and private bank facilities it is set as a margin over a reference rate such as Bank Rate or SONIA (the Bank of England's overnight sterling benchmark), or as a fixed rate, and on revolving bridging it is a monthly rate on each drawing, which may be retained, rolled up or serviced. The undrawn part of the limit carries a commitment or non-utilisation fee where the lender charges one. Because the lender commits capital it may not earn interest on, the margin can sit above an equivalent term loan's.

The pros of a revolving credit mortgage are interest only on the drawn balance, funds on call for repeated purchases, one set of security for many transactions and a limit that grows with the portfolio. The cons are commitment fees on undrawn funds, a margin that can be higher than a term loan's, minimums commonly around £500,000 in our experience (some products go lower), cross-collateralisation, periodic review and a finite availability period.

A revolving credit facility lasts for the availability period in its facility agreement, which runs up to five years on the facilities we see, with reviews along the way. On a revolving bridging facility each drawing is repaid within its own shorter term, on the sale or refinance of the property it funded. At the end of the availability period the facility is renewed, resized or ended, and any outstanding drawings are repaid or refinanced. Facility terms vary by lender.