Guide · 11 min read
The full menu for funding a development: senior debt, stretch senior, mezzanine, equity and joint ventures, with indicative pricing and the structure for each situation.
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.
As of June 2026 there are six ways to fund a UK property development, and the spread between them is wider than the spread between any two lenders within one route: senior debt prices at 7% to 11% per annum, mezzanine at 14% to 20%, and an equity partner takes a profit share that can be worth 25% to 35% per annum equivalent. On a scheme with £1.7m of land and build costs, the choice of structure moves the developer’s cash requirement from £595,000 to under £100,000, and the developer’s net profit from roughly £500,000 to £212,000. Neither end of that range is wrong. They are different answers to different questions.
This guide is the full menu: every funding route with current pricing and leverage, how the routes combine into a capital stack, the same scheme funded three different ways with the numbers side by side, and a decision framework keyed to track record, cash position and scheme size rather than to whichever product a broker happens to sell.
Senior development finance. The foundation loan: a first legal charge over the site, drawn in monthly tranches against a monitoring surveyor’s certificates as the build progresses, interest rolled up rather than paid monthly because a scheme under construction produces no income. As of June 2026 it prices at 7% to 11% per annum plus a 1% to 2% arrangement fee and often an exit fee, and it advances 60% to 65% of total cost (loan to cost, LTC) capped at around 65% to 70% of gross development value (GDV, the completed sales value; the cap expressed against it is loan to GDV, or LTGDV). High street banks sit at the cheap, low-leverage end; specialist lenders such as Atelier and Paragon Development Finance, and challenger banks including OakNorth and Shawbrook, occupy the mid-market with more leverage and faster credit processes. The Bank of England’s credit conditions data has shown bank appetite for development lending tightening and loosening with the cycle for two decades; the structural constant is that banks stop near 65% of cost.
Stretch senior. One lender, one charge, more leverage: a single facility running to 85% or even 90% of cost at 9.5% to 13% per annum. It replaces the senior-plus-mezzanine two-lender structure with one credit decision and no intercreditor agreement, which saves legal cost and time, at the price of a blended rate on the whole loan rather than cheap money at the bottom and dear money only at the top. The product page covers terms at stretch senior finance.
Mezzanine finance. A second-charge loan layered behind the senior facility, taking total debt from the senior ceiling up to 85% to 90% of cost, priced at 14% to 20% per annum rolled up plus around 2% arrangement and often a 1% to 2% exit fee. It is repaid from sales proceeds only after the senior lender is cleared in full, which is exactly why it costs what it costs. Full treatment at mezzanine finance.
Development equity and joint ventures. A partner invests into the development SPV (special purpose vehicle, the single-project limited company that owns the site) and is paid from profit rather than interest: typically a priority return of 8% to 12% per annum on their cash, paid before any split, plus 40% to 60% of the residual profit. Equity has no repayment date and no default trigger, which makes it the only layer that genuinely absorbs bad news rather than compounding it. Structures and terms at joint venture development finance.
Bridging and refurbishment finance. Short-term first-charge loans, typically 0.75% to 1.1% per month as of June 2026, used at the edges of the development cycle rather than for the build itself: buying land before planning is enhanced, holding a site between purchase and start on site, or funding light-to-heavy refurbishment where a full development facility is disproportionate. Bridging is a tool for weeks and months, not for an 18-month build; rolled at 1% per month it costs more than senior development money and advances less against cost.
The developer’s own cash. The slice every other layer prices off. Cash carries no coupon but has the highest opportunity cost of any layer, because £1 of cash trapped in scheme one is £4 to £6 of GDV that cannot be started on scheme two at typical leverage.
| Route | Pricing, June 2026 | Leverage | Security | Repaid from |
|---|---|---|---|---|
| Senior development finance | 7% to 11% pa rolled, 1% to 2% fees | 60% to 65% LTC | First charge, PG typically 15% to 25% | First sales proceeds |
| Stretch senior | 9.5% to 13% pa rolled | To 85% to 90% LTC | First charge, fuller PG package | Sales proceeds, single waterfall |
| Mezzanine | 14% to 20% pa rolled, 2% arrangement | Tops up to 85% to 90% LTC | Second charge, share charge, PG | After senior cleared in full |
| Development equity / JV | 8% to 12% pa priority return plus 40% to 60% profit share | Any slice above debt, to 100% of cost | Shareholding in the SPV, board rights | Last, from residual profit |
| Bridging / refurbishment | 0.75% to 1.1% per month | 70% to 75% of value | First charge | Refinance or sale |
| Developer cash | No coupon, highest opportunity cost | The remainder | n/a, first loss | Last of all |
No route is used alone above 65% of cost, so the real skill is combination. The stack is assembled from the bottom: senior debt first, because it is the cheapest money and its terms, especially the release price per unit sold, constrain everything above it. Then the gap between the senior ceiling and total cost is filled with one of three things: the developer’s cash, mezzanine, or equity, and the choice between those three is the whole game. Layering mezzanine over senior reaches 85% to 90% of cost with two lenders and an intercreditor agreement between them. Layering equity over senior, or over senior plus mezzanine, reaches 100% of cost: the structure marketed as 100% development finance is exactly that combination, not a single magic product. Each layer prices off its position in the repayment queue, senior first, mezzanine second, equity last, which is why the stack’s blended cost rises with every percentage point of leverage. The arithmetic for your own scheme runs in the capital stack calculator.
The site’s house example: six houses, GDV £2,400,000, land and build costs of £1,700,000, an 18-month programme. The senior facility is £1,105,000 at 65% LTC, and senior interest, fees and monitoring come to roughly £200,000 over the term, leaving around £500,000 of profit after finance for whoever funds the rest. Here is that same scheme funded three ways.
Route A, senior debt plus cash. The developer funds the £595,000 above the senior line. Net profit is the full £500,000, an 84% return on the cash over 18 months, and the developer keeps every pound of upside. The cost is invisible but real: £595,000 is locked in one scheme for a year and a half.
Route B, senior plus mezzanine. A mezzanine lender advances £425,000, taking total debt to 90% of cost, at 15% per annum rolled plus fees: call it £108,000 all-in. The developer funds £170,000. Net profit falls to about £392,000, but the return on cash committed jumps to roughly 230%, and £425,000 of the developer’s money is free to control the next site.
Route C, senior plus JV equity. A partner invests £500,000 into the SPV for a 10% priority return (£75,000 over the term) and half the residual profit. The developer puts in £95,000. Residual profit after the priority return is about £425,000; the developer’s half is roughly £212,000, a 224% return on £95,000, with the partner rather than a lender absorbing the pain if sales come in soft.
| Structure | Developer cash in | Funding cost above senior | Developer net profit | Return on cash, 18 months |
|---|---|---|---|---|
| A: Senior + own cash | £595,000 | Nil | ~£500,000 | ~84% |
| B: Senior + mezzanine to 90% LTC | £170,000 | ~£108,000 fixed | ~£392,000 | ~230% |
| C: Senior + JV equity partner | £95,000 | £75,000 priority + ~£212,000 profit share | ~£212,000 | ~224% |
Read the table twice. On absolute profit, route A wins and route C loses by more than half. On return on cash, routes B and C double-and-more route A, and they leave £425,000 to £500,000 of the developer’s capital free to run a second scheme in parallel: two schemes on route B economics out-earn one scheme on route A economics comfortably. The table is not a ranking, it is a menu, and the right line depends on what else the cash could be doing. The companion guide on how much deposit development finance needs works the same trade-off from the cash-in side.
Having spent 25 years on the lending side, our founder’s observation is that a credit committee presented with a layered deal reads it in a fixed order that surprises developers. It does not start with the scheme. It starts with the stack itself: who sits where, who takes the first loss, and whether the party taking the first loss understands that they are taking it. A senior lender at 65% LTC behind £600,000 of genuine third-party equity reads as a safe deal almost regardless of the scheme’s finer points, because someone sophisticated has agreed to lose their money first. The same senior loan with the top of the stack filled by an opaque private loan from a friend of the developer, undocumented and possibly expecting repayment mid-build, reads as a problem, because capital that does not know it is last in the queue behaves badly under stress: it demands repayment, threatens proceedings and destabilises the workout exactly when the lender needs calm. That is why senior lenders insist on seeing the whole stack documented before drawdown, why undisclosed second charges are an event of default in every facility agreement, and why a cleanly documented JV with a deed of priority gets better senior terms than the same numbers funded by informal money.
The entire funding menu exists because of one structural fact: bank capital rules make high-leverage development lending uneconomic for banks. Under the Prudential Regulation Authority’s implementation of the Basel framework, land and development exposures attract among the highest risk weights on a bank’s book, and the regulatory capital a bank must hold against a development loan climbs steeply with leverage. Below roughly 65% of cost the lending is profitable at rates developers will pay; above it, the capital charge makes it loss-making at almost any rate. Banks therefore do not taper, they stop, and the slice from 65% to 100% of cost is served by capital that sits outside bank rules: debt funds, private credit, family offices and JV investors. Pricing follows the queue, not the lender’s mood. Senior money at 54% of GDV on the worked scheme is not touched until completed values fall about 40%, a depth the Office for National Statistics UK House Price Index has never recorded nationally, so it is cheap. The mezzanine slice sits where a 15% to 25% correction lands, territory the index did reach in 2008-09, so it costs 14% to 20%. Equity takes the first pound of every loss, so it takes a share of every pound of profit. Understanding that the price of each layer is the price of its position, and nothing else, is the single most useful idea in development funding.
By track record. A developer with three or more completed schemes can access the whole menu, including stretch senior at the top of its leverage range and fund equity. A developer with one completion is priced at the expensive end of each route and capped a notch lower on leverage. A first-time developer is realistically choosing between modest senior leverage plus their own cash, or a JV that borrows credibility as well as capital; that path has its own guide at development finance for first-time developers.
By cash position. With cash covering 35% of cost or more, route A economics are available and the question is opportunity cost, not access. With 10% to 20% of cost in cash, mezzanine or stretch senior fills the gap at a fixed price. Below 10%, equity is the honest route, because debt stacked to 95% of cost leaves no buffer and lenders price the absence of skin brutally.
By scheme size. Sub-£1m schemes are served by bridging-style refurbishment products and smaller senior lenders; the fixed costs of a two-lender stack (two sets of legals, an intercreditor, two monitoring regimes) do not amortise on small facilities. The £2m to £10m GDV mid-market is where the full menu competes hardest. Above £10m, club deals and fund equity dominate.
By risk appetite. Debt fixes the funding cost and concentrates scheme risk on the developer; equity shares both. On a scheme with genuine sales risk, a long programme, or a market the MHCLG housebuilding statistics show softening, giving up profit share buys a partner whose return shrinks alongside yours rather than a coupon that compounds against you.
Every route on the menu underwrites the same four things, weighted differently. The exit: sold comparables supporting the GDV unit by unit, because every layer is repaid from sales. The cost: a contractor-backed build price with a contingency line a quantity surveyor would sign, not a developer’s spreadsheet rate. The consent: a planning decision notice with conditions understood and priced. The sponsor: completions, conduct on previous facilities, and behaviour under stress. Senior lenders weight cost and consent; mezzanine lenders weight the exit, because they live in the band a valuation miss lands in; equity partners weight the sponsor above everything, because equity cannot foreclose its way out of a bad relationship. Build the pack once, to the standard of the most demanding reader, and the whole menu opens at once. UK Finance’s lending data shows how concentrated bank development appetite remains, which is the practical reason a funding application aimed at one bank is a plan with a single point of failure.
By matching one or more of six routes to the scheme: senior development finance at 7% to 11% per annum covering 60% to 65% of cost, stretch senior at 9.5% to 13% reaching 85% to 90% of cost, mezzanine at 14% to 20% layered behind a senior loan, development equity or a joint venture where a partner funds the gap for a priority return of 8% to 12% plus a profit share, bridging finance for land or light works, and the developer's own cash, as of June 2026. The application itself needs a consented scheme, an appraisal with sold comparables, a build cost backed by a contractor price, and evidence of track record.
For a UK property development: senior debt from banks and specialist development lenders, junior or stretch debt (mezzanine and stretch senior) from non-bank lenders, equity from JV partners, family offices, funds and platforms, and the developer's own cash. Almost every scheme uses at least two of the four, because senior lenders stop at 60% to 65% of cost and someone has to fund the slice above the senior line before a lender will release a penny.
It depends entirely on how the stack is built. On a scheme with £1.7m of land and build costs, a developer funding alongside a 65% loan-to-cost senior facility needs roughly £595,000 of cash. Adding mezzanine to 90% of cost cuts that to about £170,000. A joint venture where an equity partner funds the gap above senior debt can take the developer's cash contribution below £100,000, in exchange for a priority return and a share of profit. The honest answer as of June 2026 is anywhere from around 10% of costs to 40%, set by the structure rather than the scheme.
Not with a secret, but with a structure: 100% development finance is senior debt plus mezzanine or equity layered to cover the full cost, in exchange for interest and a large share of the profit. It exists for developers who bring a genuinely strong deal, profit on cost above about 25%, planning in place, and a credible delivery team, because the capital filling the top of the stack takes the first loss and prices accordingly. A first-time developer with no cash and an average deal will not raise it; a developer with a strong consented site and an experienced contractor can.
On a scheme that performs to plan, mezzanine is usually cheaper: on the worked £2.4m GDV example, £425,000 of mezzanine costs about £108,000 fixed, while an equity partner funding £500,000 takes roughly £75,000 of priority return plus around half the residual profit, £287,000 in total. The order reverses when the scheme underperforms, because the mezzanine coupon keeps accruing through delays while an equity partner's profit share simply shrinks. Scheme risk, not headline pricing, should drive the choice.
Last reviewed: June 2026.
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