Mezzanine development finance: the layer that takes a 65% senior facility to 90% of cost

Where mezzanine sits in a property development capital stack

Mezzanine finance in property development is a second loan layered behind the first. The senior lender advances 60 to 65 percent of total project cost, secured by a first legal charge over the site; the mezzanine lender advances the next slice, typically up to 90 percent of cost as of June 2026, secured by a second charge. The name is literal: it is the floor between the senior debt below and the developer's equity above, and its position in that capital stack determines everything about it, from its pricing to its paperwork.

A definition note before going further, because the bare term is ambiguous. In corporate lending, mezzanine means subordinated debt with equity warrants in a trading business, and that is what the British Business Bank and most generic guides describe. This page is about the property development variant: a fixed-term, second-charge development loan with no warrants and no conversion rights, sized against loan to cost (LTC, the loan measured against total project cost) and loan to GDV (the loan against gross development value, the end sales value). If you searched mezzanine finance with a scheme in mind, this is the product you mean.

What mezzanine is for is equally specific: reducing the cash a development needs from you. A developer at 65 percent LTC must fund roughly a third of project cost from equity. Topping the stack to 90 percent with mezzanine cuts that contribution by two thirds or more, which is the difference between running one scheme and running three. The alternative routes to the same leverage, a single stretch senior facility or an equity partner, are compared throughout this page.

What mezzanine development finance costs in June 2026

Mezzanine pricing as of June 2026 runs at 14 to 20 percent per annum, plus an arrangement fee of 1 to 2 percent of the facility and, with some funds, an exit fee of around 1 percent. Interest is almost always rolled up: it accrues onto the loan and is repaid in one sum at exit, because a scheme under construction has no income to service monthly payments. Within the 14 to 20 band, position drives price: a facility topping the stack to 85 percent of cost on a strong scheme with an experienced sponsor prices near the bottom, while a facility reaching 90 percent on a tighter margin prices at the top.

The mechanic behind the price is the repayment queue, not lender greed. Senior debt at 65 percent of cost is repaid first even from a distressed sale, so it prices at 7 to 11 percent. The mezzanine slice between 65 and 90 percent is wiped out if the scheme's value falls 10 to 15 percent short, so it prices at roughly double. Equity stands behind everyone with no contractual right to repayment at all, which is why partners need 25 to 35 percent per annum equivalent. Price follows position; the full ladder is set out in the table below.

One pricing trap deserves its own sentence: time costs more than rate. On a £425,000 mezzanine facility, the difference between 14 and 16 percent over 18 months is about £12,750, while a three-month programme overrun at 16 percent costs £17,000 in mezzanine interest alone, before the senior interest, monitoring fees and prelims that accrue on the whole scheme. Negotiate the rate, but protect the programme harder. Our mezzanine cost calculator models both levers on your numbers.

How second charge funding is secured: the documents that rank the lenders

Three documents define a mezzanine lender's position. The second legal charge over the site gives them security ranking immediately behind the senior lender. The intercreditor deed (or, on simpler deals, a shorter deed of priority) is the contract between the two lenders that governs how that ranking works in practice: it confirms the senior lender is repaid first, caps the senior debt that can rank ahead of the mezzanine (so the senior lender cannot advance more and push the mezzanine deeper underwater), sets standstill periods during which the mezzanine lender cannot enforce, and grants cure rights letting the mezzanine lender step in and fix a senior default to protect its own position. Alongside these, expect a debenture over the borrowing SPV (special purpose vehicle, the company holding the scheme), a charge over its shares, and a personal guarantee, typically capped at 10 to 25 percent of the facility.

Developers tend to treat these as lawyer formalities. They are not: the intercreditor terms decide what happens in every bad scenario, and senior lenders have firm views on what they will accept, which is why an agreed-in-principle intercreditor position belongs at the start of the process, not the end. The full comparison of the two debt layers, including who holds which rights, is in our guide to senior debt vs mezzanine debt.

Worked example: topping a 65% senior facility to 90% on a £2.4m GDV scheme

The house example we use across this site: a scheme with a GDV of £2,400,000, land at £600,000, build at £1,000,000 and a 10 percent contingency of £100,000, so hard costs of £1,700,000. Senior development finance at 65 percent LTC provides £1,105,000 at around 8.5 percent per annum. Funded that way alone, the developer's cash requirement is roughly £595,000. A mezzanine facility of £425,000 takes the stack from 65 to 90 percent LTC and cuts the cash requirement to about £170,000 plus working capital headroom.

Now the cost of that relief. At 16 percent per annum with interest rolling on drawn balances, the £425,000 facility accrues roughly £85,000 over an 18-month scheme, and a 2 percent arrangement fee adds £8,500: call it £95,000 all-in. At exit the waterfall pays the senior lender about £1,235,000 including rolled costs, then the mezzanine lender about £520,000, then sales costs of roughly £60,000, leaving the developer around £335,000 of profit against the £430,000 they would have kept funding the gap with their own cash. The £95,000 difference bought £425,000 of cash freedom for 18 months, an effective cost of about 15 percent per annum on the cash released. Whether that trade is good depends entirely on what the freed cash earns elsewhere: deployed into a second scheme returning 25 percent on cost, it is comfortably positive.

Note what the example also shows about risk. At 90 percent LTC, total debt including rolled costs is roughly £1,755,000 against a £2,400,000 GDV, a loan to GDV of 73 percent. The scheme can absorb a 24 percent fall in sales values before the mezzanine lender loses money, but only a 12 percent fall before the developer's profit is gone. The leverage magnifies your outcome in both directions.

From the lender side: why the intercreditor takes longer than either loan

Having sat on the lending side of layered deals at Bank of Scotland and Lloyds Banking Group, our founder's observation is that the facility documents are rarely where two-lender deals stall: the intercreditor deed is. Each lender's credit approval assumes a set of rights in a downside, and the deed is where those assumptions collide. The clauses that actually get fought over are predictable: the senior debt cap (the mezzanine lender wants headroom for cost overruns tightly limited, the senior lender wants flexibility), the standstill period (how long the mezzanine lender must wait before enforcing, usually 90 to 180 days), payment stops (whether mezzanine interest can be paid while the senior facility is in default), and cure rights (how many times the mezzanine lender can remedy a senior default before the senior lender can act regardless).

The practical lesson from the desk: a credit committee reading a layered deal asks "who takes the first loss, and do they know it?", and the intercreditor deed is where the answer is written down. Deals where the two lenders have worked together before, on each other's known paper, document in a fortnight; deals introducing two strangers can spend six weeks on a single deed while the land contract ticks. Pairing lenders with an established intercreditor history is one of the most valuable things a broker does on a mezzanine deal, and one of the least visible.

Mezzanine debt or equity: the decision that actually matters

The slice between 65 and 100 percent of cost can be funded two ways, and the choice is the most consequential structuring decision on a leveraged scheme. Mezzanine is debt: a fixed cost, known in advance, repaid regardless of how the scheme performs. Equity is a profit share: no coupon accrues, but the partner takes 40 percent or more of what the scheme makes. On the worked example above, mezzanine costs £95,000; a JV partner funding the same £425,000 slice at a 10 percent priority return plus 40 percent of residual profit would take roughly £195,000 from the same outcome. On a scheme that performs to plan, mezzanine is half the price.

Reverse the scenario and the answer reverses. If sales values fall 12 percent and the programme slips six months, the mezzanine coupon has kept accruing against a shrinking profit, and the developer carries the whole miss; an equity partner would have shared it, because their return only exists if profit does. The honest framing: mezzanine is cheaper when you are right and dearer when you are wrong. Developers confident in their GDV evidence and build price should lean to mezzanine; schemes with genuine sales or programme uncertainty are safer sharing the risk through JV development finance. The full framework, with downside cases worked through, is in our mezzanine vs equity guide.

What mezzanine lenders underwrite, and who writes it

A mezzanine lender's underwriting starts where the senior lender's stops, because their money burns first. Expect scrutiny in this order: profit on cost (projected profit divided by total cost), with 20 percent the working floor since the margin is the mezzanine lender's only cushion; the evidence behind the GDV, meaning comparable sales rather than agent optimism; the senior lender's identity and terms, because the intercreditor relationship matters as much as the borrower; the build contract and contingency, since cost overruns land on the mezzanine slice before the senior one; and the developer's completed schemes, with a capped personal guarantee standard. Decisions are faster than senior credit processes, commonly two to three weeks to credit-backed terms, because mezzanine funds run smaller committees.

The lender pool is specialist rather than mainstream. Iron Bridge Finance, an owner-managed fund specialising in UK regional mezzanine and equity development finance, publishes completed positions including a £6,110,000 mezzanine loan on a £52,260,000 GDV Hackney scheme and a £3,020,000 loan on a £21,260,000 GDV Bristol scheme, with over £330m of mezzanine and equity invested across 300-plus projects. Private credit funds such as ASK Partners and Maslow Capital take stack positions above 65 percent LTC on larger tickets where profit on cost clears 20 percent and the sponsor has completed schemes. Below roughly £500,000, dedicated mezzanine appetite thins out and the slice is more often funded by private investors or solved with a stretch facility instead; matching the slice size to the right pool is most of the placement work.

Development funding rates by stack layer, June 2026

Indicative ranges across the UK market as of June 2026. Each layer prices on profit on cost, leverage point, sponsor track record and scheme specifics, so treat these as the realistic band, not a quote.

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

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