Guide · 9 min read
What developers actually contribute at each leverage level: senior-only, stretch senior, with mezzanine, and the JV equity structures that take cash-in close to zero.
Written by Matt Lenzie · Published 11 June 2026
Advice from
Matt Lenzie · 25+ year career banker (Bank of Scotland, Lloyds Banking Group). £300m+ of equity and debt raised for property clients.
25+ year career banker (Bank of Scotland, Lloyds Banking Group). £300m+ of equity and debt raised for property clients.
Ask a mortgage broker what deposit you need and the answer is a percentage. Ask a development lender and the honest answer is a structure. The same six-house scheme, with £1,700,000 of land and build costs, needs roughly £600,000 of the developer's cash through one funding route, £250,000 through another, and nothing at all through a third, and the third is not a trick: it is a joint venture, paid for in profit share instead of savings. As of June 2026, the developer's cash contribution on a UK development scheme runs anywhere from 40% of project costs down to zero, and where you land on that range is a structuring decision, not a market rule.
This guide works the real contribution at every leverage level on the same scheme, pound by pound: senior-only, stretch senior, senior plus mezzanine, and the full JV structures behind the phrase "100% development finance". It also covers what lenders accept as equity besides cash, and the working capital requirement that catches developers who budgeted only for the headline gap. The structures sit on our capital stack page, and the full menu of funding routes is in our guide to how to fund property development.
The word "deposit" imports the wrong mental model. A mortgage deposit is cash handed over on day one against a finished asset; a development facility is drawn in stages against work completed, and the lender sizes it with two ratios. Loan to cost (LTC) is the facility as a percentage of total project costs, and as of June 2026 mainstream senior development lenders stop at 60% to 65% LTC. Loan to gross development value (LTGDV) is the facility against the completed scheme's value, gross development value (GDV), and senior money caps at 60% to 65% there too, with whichever ratio bites first setting the loan. Everything the facility does not cover is the equity requirement: the developer's contribution, in cash or in kind, that goes in before or alongside the lender's money.
The sequencing matters as much as the size. Development lenders fund in arrears against a monitoring surveyor's certificate: the developer's equity is spent first, usually on the land purchase and early works, and the facility only starts flowing once the equity is committed. The Bank of England's Bank Rate sets the floor under all of this pricing, but the ratios are about loss protection rather than funding cost: the equity is the layer that burns first if the scheme misses, so the lender wants it real, spent, and visible before their first pound draws.
Here is the house scheme used across this site: six units, £2,400,000 GDV, land at £600,000, build at £1,000,000 plus a 10% contingency, so hard costs of £1,700,000. Finance costs vary with the structure, but all-in costs land between £1,830,000 and £1,900,000, leaving profit of roughly £500,000. The question is how much of the developer's own cash each route requires.
Senior only, 65% LTC. The facility is £1,105,000 against £1.7m of hard costs, with rolled interest and fees of roughly £130,000 largely funded inside it. The developer funds the balance of costs, about £595,000, in practice £600,000 plus once working capital is added. This is the cheapest debt, around 8.5% per annum as of June 2026, and the largest cheque: the developer's cash buys the whole margin, all £500,000 of profit, but a developer without £600,000 free is not doing this scheme this way.
Stretch senior, 85% to 90% LTC. One lender advances £1,445,000 to £1,530,000 of the £1.7m at 9% to 13% per annum, described in detail on our stretch senior finance page. The developer's contribution falls to roughly £200,000 to £300,000 including working capital. The extra leverage costs perhaps £35,000 to £55,000 more in interest and fees than the senior-only route, against £300,000 to £400,000 less cash locked in the scheme. One facility, one valuation, one set of lawyers, which is why stretch senior is usually the first stop for a developer short of the full equity cheque.
Senior plus mezzanine to 90% LTC. The senior lender stays at £1,105,000 and a mezzanine lender advances around £425,000 behind it on a second charge, at 14% to 20% per annum. The developer's cash lands in the same £200,000 to £300,000 band as stretch senior, but with two lenders, two credit processes, and an intercreditor deed between them that takes real time to negotiate. The structure earns its complexity when the mezzanine pushes leverage past where any single stretch lender will go, or when the senior pricing is sharp enough that blended cost beats the stretch quote.
Full JV structure, the "100%" route. Senior debt to its ceiling, then a JV equity partner funds the entire remaining requirement, around £600,000 on this scheme, in exchange for a priority return of 8% to 12% per annum and a profit split. The developer's cash contribution is zero; the cost is paid at exit, in profit. On this scheme a 10% priority return and 50/50 split leave the developer £205,000 of the £500,000 profit. That is the most expensive route measured in pounds given up, and the only route available at £0 in, which is exactly the trade described on our 100% development finance page.
| Route | Leverage | Developer cash on £1.7m costs | Cost of the route, indicative |
|---|---|---|---|
| Senior only | 60-65% LTC | £600,000+ | 7-11% pa, 1-2% in/out fees; developer keeps all ~£500k profit |
| Stretch senior | 85-90% LTC | £200,000-£300,000 | 9-13% pa; roughly £35k-£55k more finance cost than senior-only |
| Senior + mezzanine | to ~90% LTC | £200,000-£300,000 | Senior 7-11% plus mezz 14-20% pa; ~£90k-£105k mezz cost over 18 months |
| Senior + JV equity | 100% of requirement | £0 | 8-12% pa priority return plus 40-50% of profit; ~£295k of £500k on the worked scheme |
Read the table as a price list for cash. Moving from senior-only to stretch frees roughly £350,000 for about £45,000 of extra finance cost, around 13% on the cash released over 18 months. Moving from stretch to the full JV frees the last £250,000 but costs profit share rather than interest, and the price of that final slice is much higher per pound freed. The pattern that falls out: use the cheapest leverage to the point where your cash runs out, not beyond it, and price each further step against what the freed cash earns on your next site. Our 100% development finance calculator runs this arithmetic on your own scheme.
Lenders count three things toward the equity requirement. First, cash into the SPV, the cleanest and the benchmark. Second, land already owned: a site held unencumbered goes in at its current market value, evidenced by the lender's own RICS Red Book valuation, and on this scheme a developer who already owned the £600,000 site would satisfy the entire senior-only equity requirement without writing a cheque, borrowing the full build cost against it. Third, planning gain: a site bought for £400,000 and consented through the developer's own planning work to a £600,000 value contributes £600,000 of equity, not £400,000. The £200,000 uplift is real equity, created rather than saved, and with consented land values still firm against the housing supply shortfall tracked in MHCLG's net additional dwellings statistics, planning gain is the most capital-efficient equity an SME developer can manufacture.
Two caveats from the underwriting side. Charged land only counts net: a £600,000 site carrying a £300,000 bridging loan contributes £300,000, and the bridge must be repaid or subordinated at completion of the development facility. And the credit is always the valuer's figure: developers who buy well and assume the discount counts as equity discover that an aggressive purchase price can drag the valuation down with it, because the valuer must weigh the recent transaction as evidence. Hold the evidence for why you bought below value, a distressed vendor, an unmarketed sale, and give it to the valuer in writing.
The equity requirement is not the last cash question, because of the arrears mechanic. Development facilities draw monthly against certified work: the contractor completes a month of work, the monitoring surveyor inspects and certifies it, the lender funds against the certificate, and the money arrives days after that. Someone pays the contractor across that gap, and on a £1,000,000 build running 12 months, one to two months of build cost means £80,000 to £170,000 of cash cycling through the SPV ahead of each drawdown. Lenders test for it at credit stage: an appraisal that allocates every pound of equity to land and build, with nothing liquid behind it, reads as a scheme one late certificate away from a stopped site.
The practical sizing as of June 2026 is one to two months of peak build spend held as accessible cash or an undrawn facility, on top of the equity contribution in the table above. This is also where JV structures earn part of their keep: a funding partner underwrites the working capital headroom inside their commitment, which is why the partner's cheque on the worked scheme is £600,000 rather than the bare £530,000 cost gap. A developer running the senior-only route needs to do the same maths on their own bank balance, and a developer who cannot should be honest that their real equity shortfall is larger than the appraisal gap suggests.
Inside a bank credit function, the equity requirement is not a number on a ratio sheet; it is sequencing policy. Committees insist the developer's money is spent before the facility draws because of what it does to behaviour: a sponsor with £300,000 sunk renegotiates with a difficult contractor, a sponsor with nothing in hands back the keys, and every workout banker has seen both. The second thing committees check is the source of the equity. Cash borrowed personally and lent on into the SPV reads very differently from cash earned out of the last scheme, because hidden gearing behind the equity means the first loss layer is itself leveraged, and the structure is riskier than its LTC suggests. Expect any lender above 75% combined leverage to ask for proof of source, and expect a JV partner to ask harder, since their money sits even further back. UK Finance's lending data shows how concentrated bank appetite has stayed since 2023, and the discipline is the explanation: leverage discipline at origination is what lets development books survive valuation cycles.
It is tempting to read the equity requirement as the lender's funding shortfall. It is actually the lender's loss insulation, and the difference explains every number in this guide. At 65% LTC on this scheme, values can fall roughly 35% from appraisal before the senior lender loses a pound, because the developer's £600,000 and the £500,000 profit margin burn first. At 90% combined leverage, the cushion is the profit margin and £200,000, roughly a 12% to 15% fall. The contribution each structure demands is the cushion that structure's lenders need to sleep, which is why the requirement is not negotiable the way a rate is: a lender trimming its equity requirement is not sharpening a price, it is changing its loss position. The corollary for developers is that the way to shrink the cash requirement is not to argue the ratio but to change what fills the cushion: land value, planning gain, or a partner's money standing where yours would, each of which is a structuring conversation rather than a credit concession.
Developer with the full cheque available: take senior-only leverage and keep the margin; the £45,000 saved against stretch is real, but only if the cash is not needed elsewhere, and a developer running two schemes off one pot usually makes more from the second scheme than the saving on the first. Developer with roughly half the equity: stretch senior first, senior-plus-mezzanine where a sharp senior quote makes the blend cheaper, and our guide to funding routes covers the comparison in detail. Developer with a site but no cash: the land is the equity, and the conversation is about funding 100% of build against it. Developer with a deal but neither site nor cash: the JV route, at £0 in, profit share out, with the realistic expectation of 35% to 50% of residual profit and partner governance over reserved matters for the life of the scheme. Each step down that list trades margin for access; none of the steps is wrong, and the error is only in not pricing the trade before signing it.
Development finance does not use a deposit in the mortgage sense; it has an equity requirement, the gap between project costs and what the lender will advance. As of June 2026, senior development finance at 60% to 65% loan to cost leaves the developer funding roughly 35% to 40% of costs, about £600,000 or more on a scheme with £1.7m of land and build costs. Stretch senior at 85% to 90% of cost cuts that to £200,000 to £300,000, adding mezzanine behind a senior loan reaches a similar place, and a full joint venture structure can take the developer's cash contribution to zero in exchange for a profit share.
Yes, but not as a 100% loan from a single lender. So-called 100% development finance is a structure: senior debt to its ceiling, then mezzanine or, more commonly, joint venture equity funding the remainder, with the equity partner taking a priority return of 8% to 12% per annum and a share of profit, commonly 40% to 50%, in place of the cash the developer does not contribute. It is available as of June 2026 for schemes showing 20%+ profit on cost with planning granted and a credible delivery team, and the developer pays for it in profit share rather than interest.
As of June 2026, senior development finance prices at roughly 7% to 11% per annum with arrangement fees of 1% to 2% and exit fees of 1% to 2%, often calculated on gross development value rather than the loan, which is worth checking in the term sheet. Stretch senior runs at 9% to 13% per annum, and mezzanine at 14% to 20% per annum. Interest is rolled into the facility rather than paid monthly, so the real cash question is the equity requirement, not the coupon.
Three things, in practice: cash invested into the project SPV; land already owned, credited at its current Red Book market value provided it is unencumbered or only lightly charged; and planning gain, the uplift in a site's value created by a consent the developer obtained after buying. A site bought for £400,000 that is worth £600,000 with planning contributes £600,000 of equity. Lenders verify value through their own valuer, so the credit is the valuer's figure, not the purchase price or the developer's estimate.
No. The 25% figure belongs to buy-to-let mortgages, where lenders cap at around 75% loan to value on an income-producing asset. Development finance is sized differently: against loan to cost (typically 60% to 90% depending on the structure) and capped against loan to gross development value (60% to 75%), with funds drawn in stages during the build. The developer's contribution varies from 40% of cost down to nothing depending on how the capital stack is built, which is a wider and more negotiable range than any mortgage deposit rule.
Last reviewed: June 2026.
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