Mezzanine finance sits behind your senior development loan and covers the gap between what your existing lender has advanced and what the project needs to finish. We arrange it as a second-charge facility, leaving the cheaper senior debt exactly where it is.
How mezzanine finance works
Every development is funded through a capital stack. At the bottom sits senior debt — the first-charge development loan that funds most of the build, priced cheapest because it is repaid first. Above it sits mezzanine debt — a second charge from a separate lender, priced higher because it is repaid second. At the top sits your equity, which is repaid last and absorbs any shortfall first. Mezzanine finance is the middle layer: it tops up the stack without disturbing what sits beneath it.
In one line: senior debt is your first-charge development loan; stretch senior is a single first-charge facility that lends further up the stack at a blended rate; mezzanine is a separate second-charge loan layered behind an existing senior facility.
Mezzanine comes in two forms — mezzanine debt and debt-to-equity. Almost everything we arrange is the former, and it behaves much like a bridging loan: short-term capital to carry a part-built scheme through to completion. The structural points that matter:
- Second charge, no refinance. The mezzanine lender sits behind your existing lender, so the cheaper first-charge debt stays in place untouched.
- No equity dilution. You raise the additional funding without giving away a share of the scheme or taking on a joint-venture partner.
- Nothing to service. Interest rolls up or is retained, so there are no monthly payments while the build completes.
- Leverage to around 70–75% of gross development value, depending on the lender, the scheme and your credit profile — beyond that, the decision turns on the profit margin left in the project.
Who uses it
Most commonly, developers partway through a scheme whose costs have moved. Material prices rise, an incident on site forces works to be redone, or the scope grows beyond the original drawings — an extra storey, a pool, two more bedrooms. The senior facility was sized for the build as first costed; mezzanine funds the difference and gets the project over the line.
It works for residential and commercial schemes alike. It is rarely worthwhile on a very small project — a single house at the end of a garden — but from four or five units upwards, where the chance of a budget overrun is real, it earns its place in the structure.
What it costs
Mezzanine debt is priced above senior debt, and the reason is structural rather than commercial. If a scheme fails and the property is repossessed, the first-charge lender is repaid in full before the mezzanine lender sees anything; if an unfinished site sells for less than expected, the second-charge position absorbs the loss. That subordination is what the rate reflects. Rates move with the market and price to the specific case — we quote against your actual scheme, not a rate card.
Set-up costs run slightly higher than their senior equivalents, and they are worth modelling against the profit margin before you commit. The mechanics work in your favour on exit: because interest rolls up or is retained rather than being serviced monthly, the faster you repay, the less you pay overall — and where interest has been retained, early repayment can produce a rebate at redemption.
The process
Presentation decides the outcome. A part-built scheme that has run short of money raises an obvious question for any lender — why — and how that question is answered determines who will lend and at what price. We package the stage of build, the cost to complete, the gross development value and your credit profile, then approach the lenders we know will engage with that profile. Across 135+ lenders, we know which will decline before we ask, which will quote, and where rates and costs can be negotiated — and we manage the case through valuation and legals to drawdown.
Timescales mirror bridging. Where there is genuine urgency it can be arranged in as little as seven to 14 days; four weeks is the sensible aim, giving the valuation and the legal work time to complete properly.
Frequently asked questions
Is mezzanine finance the same as a bridging loan?
From the borrower's side they look similar — a short-term facility with rolled-up interest, often as a second charge. They are different products with different lenders and risk profiles: a bridging loan is typically secured on a completed asset, even one being refurbished, while mezzanine is secured on a scheme partway through its build.
How much can I borrow?
It depends on the scheme — commercial or residential, the gross development value, and your credit profile. Most lenders go to around 70–75% of GDV, which should cover most completion costs; above that, the lending decision rests on the margin remaining in the project.
Is mezzanine finance risky?
Not inherently. Lenders cap leverage against the scheme, and rolled-up interest means there is nothing to service during the build. The real risk sits in whatever caused the shortfall: if the scope keeps expanding beyond the new facility, the project can run out of money a second time. Identifying and mitigating that cause is part of how we present the case.
What security do I need?
The project itself. The stage of build determines lender appetite: a scheme that is watertight with only fittings and electrics to finish is straightforward to fund, because the remaining requirement is small. An early-stage scheme that has already exhausted its senior facility is much harder. What must be demonstrated, in every case, is a credible route to completion.
How quickly can it be arranged?
In an emergency, seven to 14 days. The realistic aim is four weeks, so the valuation and legal work are done properly rather than at speed.
Can I use mezzanine finance for residential development?
Yes — it applies to any development, residential or commercial. It is rarely used on very small single-unit projects; from four or five units upwards it becomes more relevant, because the exposure to a budget overrun is greater.
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Talk to an adviser
Tell us where the scheme stands, what it will take to finish and how the current facility looks, and we will set out the realistic options. Call 020 7126 8574 or request a call back — we aim to reply within one working day.
We conduct both regulated and unregulated business and therefore not all mortgage / finance products provided through us are regulated by the Financial Conduct Authority. Your property may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it.
To put numbers to the wider scheme, use our development finance (GDV) calculator.
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