The development capital stack: every layer, what it costs, and the order it is repaid

What the capital stack is: funding ranked by repayment priority

The capital stack is the complete set of money behind a development, drawn as layers in order of who gets repaid first. At the bottom of the diagram and the front of the repayment queue sits senior debt; above it, stretch senior or mezzanine; at the top, equity, the layer that is repaid last and only from profit. As of June 2026 the pricing across UK development funding tracks that order exactly: senior at 7 to 11 percent per annum, stretch senior at 9.5 to 13 percent, mezzanine at 14 to 20 percent, and equity underwritten to an expected 25 to 35 percent per annum.

The stack exists because no single funder wants the whole risk. A senior lender advancing 60 to 65 percent of cost is protected by everything above it: prices can fall a long way before its money is touched. Each layer added above the senior absorbs loss sooner and charges more for doing so. The developer's structuring job is to choose how many layers to use and how thick each should be, which sets two numbers: the blended cost of the capital and the return on the cash the developer puts in.

Both numbers are modelled in our capital stack calculator, which builds the layers on your scheme's figures. The rest of this page explains what the calculator is doing and why.

Senior debt: first charge, first repaid, cheapest money in the stack

Senior development finance is a loan secured by a first legal charge over the site, advanced in stages against build progress certified by a monitoring surveyor. It funds 60 to 65 percent of total cost, defined as loan to cost (LTC), capped in parallel at around 65 to 70 percent of gross development value (GDV), the scheme's end sales value, defined as loan to GDV (LTGDV). Pricing as of June 2026 runs 7 to 11 percent per annum plus arrangement and exit fees, with specialist development lenders such as Atelier and Paragon Development Finance, and challenger banks including OakNorth and Shawbrook, setting the competitive range.

Senior debt is cheap for a structural reason, not a competitive one. Repaid first from any sale, including a distressed one, a senior lender at 65 percent of cost survives a 20 percent fall in GDV without losing a pound. Bank lenders also face capital rules that make exposure above that line expensive to hold, which is why pricing cliff-edges rather than slopes as leverage rises. Senior debt itself is the down-stack product of our parent brand, arranged through Construction Capital; this site exists for the layers above it, starting with the joint venture development finance structures that complete the stack.

Stretch senior: one facility to 85 or 90 percent of cost

Stretched senior debt replaces the senior-plus-mezzanine pairing with a single facility from a single lender, advancing 85 to 90 percent of cost at a blended 9.5 to 13 percent per annum as of June 2026. The developer gets one valuation, one set of legals, one monitoring surveyor and no intercreditor negotiation, in exchange for a headline rate above plain senior but below what the same leverage costs when assembled from two lenders with two sets of fees.

The trade-off is concentration. One lender holding the whole position to 90 percent of cost underwrites harder, prices experience more sharply, and applies tighter covenants than a senior lender stopping at 65 percent. Stretch suits experienced developers on conventional schemes who value speed and simplicity; the full product, including which lenders quote it and at what thresholds, is on our stretch senior finance page.

Mezzanine debt: the second charge layer between senior and equity

Mezzanine is a second loan sitting behind the senior facility on a second charge, topping total debt up to around 90 percent of cost. It prices at 14 to 20 percent per annum as of June 2026, usually with interest rolled up and repaid from sales, and its relationship with the senior lender is governed by a deed of priority or intercreditor agreement setting out who can enforce, when, and who stands still while the other acts. Private credit funds, including ASK Partners and Maslow Capital, anchor this layer on larger schemes where profit on cost clears 20 percent and the sponsor has completed schemes behind them.

Mezzanine's pricing again follows the queue. At 90 percent of cost, a fall in GDV of 10 to 15 percent wipes the mezzanine layer out entirely while leaving the senior whole, so the mezzanine lender is paid for standing in front of precisely that loss. For the developer it is the fixed-cost way to cut the cash a scheme needs: dearer than senior, far cheaper than profit share when the scheme performs. Details, lenders and worked costs are on our mezzanine finance page.

Equity and JV funding: last in the queue, first to lose, paid from profit

The top of the stack is equity: cash invested into the project's special purpose vehicle (SPV), the limited company that owns the scheme, with no charge, no redemption date and no contractual right to repayment. It is repaid from profit through a waterfall agreed in the shareholders' agreement, typically a priority return of 8 to 12 percent per annum on the invested cash followed by a profit split. Equity providers, family offices, funds and specialist platforms, underwrite to an expected 25 to 35 percent per annum because some schemes will return them nothing; the providers and their criteria are mapped on our development funding partners page.

The equity layer can be the developer's own cash, an investor's, or both. Where an investor funds the entire slice the developer's cash requirement falls to zero and the structure becomes a joint venture, with profit shared rather than interest paid. The layer's structures, pure equity, shareholder loan hybrids and preferred equity, are covered on our development equity page.

The repayment waterfall: what happens when the units sell

Every sale flows down the same waterfall, and nothing reaches a lower layer until the one above is repaid in full. First, the senior lender takes capital, rolled interest and fees under its first charge; on plot sales, an agreed release price per unit goes to the senior until its facility clears. Second, the mezzanine lender is repaid under the deed of priority. Third, any preferred equity receives capital plus its capped return. Last, the ordinary equity: capital back, then the priority return, then the residual profit split between developer and investor.

Having sat on the lending side at Bank of Scotland and Lloyds Banking Group, our founder's observation is that credit committees read a layered deal in exactly this order, and the question they ask of every layer is the same: who takes the first loss, and do they know it. The intercreditor agreement takes longer to negotiate than either facility because it is where that question gets answered in drafting, and the clauses actually fought over are cure rights, standstill periods and payment stops, not pricing. A developer who understands the waterfall before the lawyers are instructed saves weeks at precisely the point the land contract is running out of time.

Price follows the queue: the risk and return mechanics of the stack

One mechanic explains every price on this page. Take the £2.4m GDV scheme worked below and ask what happens if sale prices fall. A 10 percent fall, £240,000, comes straight out of profit: every lender is repaid, the equity return shrinks. A 20 percent fall, £480,000, consumes the profit and starts eating the equity's capital; mezzanine at 90 percent of cost is now at the edge. Beyond 25 percent the mezzanine is losing money and the senior, at 65 percent of cost, is still whole. Each layer's price is the rent charged for standing in front of the layer below when that sequence plays out.

The corollary is that nothing in the stack is mispriced often enough to arbitrage. Cheap-looking mezzanine usually carries a thicker fee load or harder enforcement triggers; expensive-looking equity usually reflects a thin margin the developer has not conceded is thin. When a quote sits far outside the ranges in the table below, the explanation is nearly always in the security package or the appraisal, not in generosity.

Building the stack on a £2.4m GDV scheme: a full worked example

The house example used across this site: six units, £2,400,000 GDV. Land £600,000, build £1,000,000 plus a 10 percent contingency, so hard costs of £1,700,000 over an 18 month programme. Layer one, senior debt at 65 percent LTC: £1,105,000 at around 8.5 percent per annum, with rolled interest and fees of roughly £130,000 across the drawdown profile. Layer two, mezzanine to 90 percent of cost: £425,000 at 16 percent per annum, drawn at land purchase and so running the full term, roughly £102,000 of rolled interest plus an arrangement fee, call it £110,000. Layer three, equity: the remaining £170,000 of hard costs, funded by the developer or an investor.

The stack's blended cost: about £240,000 of finance costs on £1,530,000 of total debt over 18 months, a little over 10 percent per annum blended, against senior-only money at 8.5 percent. Profit: £2,400,000 less hard costs, finance and sales costs leaves approximately £390,000, versus around £500,000 had the scheme been funded with senior debt and the developer's own cash filling everything above it. The £110,000 difference is the explicit price of cutting the developer's cash requirement from £595,000 to £170,000.

Replace the £170,000 of developer cash with JV equity and the cash requirement reaches zero: that fully funded structure, senior plus mezzanine or equity covering everything, is the product on our 100% development finance page. Rebuild this example on your own scheme's numbers in the capital stack calculator.

Leverage and your return on cash: how the right stack changes the answer

The reason developers layer the stack at all is return on the cash they invest. Fund the worked scheme with senior debt only and the developer puts in £595,000 to earn roughly £500,000 of profit: 84 percent over 18 months, around 56 percent per annum. Add the mezzanine layer and the developer puts in £170,000 to earn roughly £390,000: more than double the money over the same 18 months, and the freed £425,000 of cash is available to start a second scheme whose profit comes on top.

Leverage cuts both ways, and the same arithmetic that multiplies the return multiplies the loss. On the 90 percent geared structure a £170,000 cost overrun consumes the developer's entire cash stake; on the senior-only structure it is an 11 percent dent in a £1.5m margin of safety. The right stack is therefore not the highest one available but the highest one the scheme's risks can carry: fixed-price contract, evidenced GDV and a genuine contingency justify gearing that a speculative appraisal does not.

UK and US capital stack terminology: translating the vocabulary

Searches for the capital stack surface mostly US commercial real estate material, and the vocabulary needs translating. The US "sponsor" is the UK developer: the party who finds, structures and delivers the scheme. "Common equity" is what UK documents call ordinary shares in the SPV. "Preferred equity" exists in UK development under the same name but is rarer as a standalone tranche; UK deals more often reach the same economics with a priority return inside a JV waterfall or a shareholder loan ranking ahead of the ordinary shares.

Two further differences matter in practice. US material describes capital stacks for income-producing assets, where debt service is paid monthly from rent; UK development facilities roll interest up and repay everything from sales, which changes how each layer experiences a delay. And US mezzanine is commonly secured by a pledge over the borrowing entity's shares, where UK development mezzanine takes a second legal charge over the site itself with a deed of priority. Same diagram, different machinery.

Every layer of the development capital stack, June 2026

Indicative ranges across the UK market as of June 2026. Every layer prices on profit on cost, track record, scheme size and location, so treat these as the realistic band, not a quote.

Ranges are indicative, as of June 2026, and depend on profit on cost, track record, scheme size, build contract and location at the time of introduction.

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