What is Mezzanine Development Finance?

Mezzanine finance is a form of subordinated debt that sits between your senior development finance (first charge) and your equity contribution. It’s called “mezzanine” because it occupies the middle layer of the capital stack—below senior debt in priority but above your equity.

How the Capital Stack Works

1. Senior Debt (First Charge)– Typically 60-70% LTV from mainstream development lenders
2. Mezzanine Finance (Second Charge)– Additional 10-25% LTV from specialist mezzanine providers
3. Developer Equity– Your contribution, typically 10-25% of total project costs

This structure allows you to reduce your cash contribution while still securing full project funding.

Key Features

• Loan amounts:£250,000 to £5 million+ (larger facilities available for substantial projects)
• Additional leverage:Typically 10-25% of Gross Development Value (GDV)
• Combined LTV:Up to 85-90% when combined with senior debt
• Security:Second charge over the development site
• Term:12-24 months (aligned with development timeline)
• Interest rates:12-18% per annum (higher than senior debt due to increased risk)
• Arrangement fees:2-3% of facility

When Do You Need Mezzanine Finance?

Mezzanine finance is ideal when:

• Your senior lender caps at 65-70% LTVand you need additional funding to reach 80-85% total leverage
• You want to preserve cashfor other projects or operational needs
• Your project is viable but equity-constrained—the numbers work, but you lack sufficient deposit
• You’re an experienced developerwith a proven track record (mezzanine lenders rarely fund first-time developers)
• Your project has strong exit potential—clear route to refinance or sale upon completion
• You need to move quicklyon an opportunity and don’t have time to raise additional equity

Types of Projects Funded

Residential Development

• New build housing estates
• Apartment block conversions
• Urban infill developments
• Townhouse schemes

Commercial Development

• Office-to-residential conversions
• Retail unit refurbishments
• Mixed-use developments
• Industrial estate upgrades

Specialist Projects

• HMO conversions requiring additional capital
• Listed building restorations with cost overruns
• Ground-up developments with planning gains
• Portfolio acquisitions for refurbishment

Geographic coverage: Projects across Scotland, England & Wales.

Real-World Example: How Mezzanine Finance Works

The Project

• Type:8-unit new build residential development in Edinburgh
• Gross Development Value (GDV):£2,400,000
• Total Project Costs:£1,800,000
• Senior Debt (65% LTV):£1,170,000
• Funding Gap:£630,000

Without Mezzanine Finance

• Developer equity required:£630,000 (35% of costs)
• Many developers cannot raise this level of cash

With Mezzanine Finance

• Senior Debt (65% LTV):£1,170,000
• Mezzanine Finance (20% GDV):£480,000
• Developer Equity Required:£150,000 (just 8.3% of costs)

Cost Breakdown

Senior Debt:

• Amount: £1,170,000
• Rate: 7.5% per annum
• Term: 18 months
• Interest cost: £131,625

Mezzanine Finance:

• Amount: £480,000
• Rate: 15% per annum
• Term: 18 months
• Interest cost: £108,000
• Arrangement fee (2.5%): £12,000

Total finance cost: £251,625

Developer equity saved: £480,000

Result: The developer completes the project with £150,000 equity instead of £630,000, freeing up £480,000 for other opportunities—despite paying £120,000 in mezzanine costs.

Eligibility Criteria

Mezzanine lenders typically require:

Developer Experience

l Minimum 3 completed developments (some lenders require 5+)

• Proven track recordof delivering projects on time and budget
• Experience in the specific project type(residential, commercial, etc.)

Project Viability

• Strong exit strategy—clear refinance or sale route
• Realistic GDV—supported by comparable sales evidence
• Credible build costs—backed by quantity surveyor reports
• Planning permission in place(or strong likelihood of approval)

Financial Position

• Minimum 10% equity contributionfrom developer
• Adequate cash reservesfor contingencies
• Clean credit history(some adverse considered for experienced developers)
• Strong senior lender in place—mezzanine is always subordinated to senior debt

Security

• Second charge over development site
• Personal guaranteesusually required
• Debenture over developer entity(for corporate borrowers)

Why Choose Capital 8 Finance for Mezzanine Finance?

Specialist Lender Access

At Capital 8 Finance, we have access to the UK’s specialist mezzanine finance providers, including:

• Specialist mezzanine lenders– Second charge facilities from £250,000 for experienced developers
• Alternative finance providers– Creative structures when traditional mezzanine isn’t suitable

Whole-of-Market Broker Expertise

As an independent broker, I’m not tied to any single lender or product. I assess your project objectively and recommend the most cost-effective solution—whether that’s mezzanine finance, stretch senior debt, joint venture equity, or a combination of structures.

Transparent Advice

• Honest assessment—I’ll tell you if mezzanine finance is right for your project or if alternative structures would be more cost-effective
• Clear cost breakdowns—you’ll understand exactly what you’re paying before proceeding
• No obligation—initial consultation is free, and you’re under no pressure to proceed

Structured Approach

• Initial consultation—understand your project, senior debt position, and funding gap
• Viability assessment—review GDV, costs, exit strategy, and experience
• Lender selection—match your project to the most suitable mezzanine providers through my principal firm’s panel
• Application support—prepare detailed submissions with all required documentation
• Negotiation—work to secure competitive rates and terms
• Completion support—coordinate with senior lender, solicitors, and valuers to ensure smooth drawdown

Mezzanine Finance vs. Alternative Solutions

Mezzanine Finance vs. Stretch Senior Debt

Stretch Senior Debt:

• Single lender providing 75-80% LTV (higher than standard senior debt)
• Simpler structure (one lender, one charge)
• Typically 9-12% interest rates

Best for: Developers who want simplicity and can accept slightly higher senior debt costs

Mezzanine Finance:

• Two lenders (senior + mezzanine)
• Can achieve 85-90% total LTV
• More complex structure (intercreditor agreements required)

Best for: Developers who need maximum leverage and have strong experience

Mezzanine Finance vs. Joint Venture Equity

Joint Venture (JV) Equity:

• Partner provides equity in exchange for profit share (typically 30-50%)
• No debt repayment required
• Partner may want input on project decisions

Best for: Developers willing to share upside for zero debt cost

Mezzanine Finance:

• Fixed cost (interest + fees)
• Developer retains 100% of profit after debt repayment
• No partner involvement in decisions

Best for: Developers who want to retain full control and upside

Frequently Asked Questions

What’s the minimum project size for mezzanine finance?

Most mezzanine lenders require a minimum facility of £250,000, which typically means total project costs of at least £1.5 million (as mezzanine usually represents 15-20% of the capital stack).

For smaller projects (under £1.5m total costs), alternatives like stretch senior debt or bridging finance may be more appropriate.

Can first-time developers access mezzanine finance?

Rarely. Mezzanine lenders almost always require a minimum of 3 completed developments. The subordinated position (second charge) means higher risk, so lenders need confidence in the developer’s ability to deliver.

If you’re a first-time developer, focus on securing stretch senior debt (75-80% LTV from a single lender) or bringing in a joint venture partner with development experience.

How quickly can mezzanine finance be arranged?

Typically 4-8 weeks from application to drawdown, assuming:

• Senior debt is already in place or being arranged in parallel
• All documentation is ready (planning, QS reports, valuations)
• The developer has a strong track record

The timeline can be shorter (3-4 weeks) for experienced developers with straightforward projects, or longer (10-12 weeks) if senior debt needs to be arranged first or if there are planning complications.

Do I need senior debt in place before applying for mezzanine?

Not always, but it helps. Some mezzanine lenders prefer to see senior debt agreed in principle, while others are happy to work in parallel. I can coordinate both facilities simultaneously to save time.

However, the mezzanine lender will need to know:

• Who the senior lender is
• The senior debt terms (amount, rate, LTV)
• The senior lender’s drawdown and monitoring requirements

This allows the mezzanine lender to structure their facility to align with the senior debt.

What happens if the project runs over budget or timeline?

Mezzanine lenders typically include:

• Contingency reserves(5-10% of costs) held back for overruns
• Extension options(usually 6 months) at an increased rate (typically +2-3% per annum)
• Step-in rightsif the project fails—the mezzanine lender can take control to protect their position

If you need to extend beyond the initial term, expect:

• Higher interest rates during the extension period
• Additional arrangement or extension fees (typically 1-2% of facility)
• More frequent monitoring and reporting requirements

Is mezzanine finance regulated?

No. Mezzanine finance is commercial lending secured against development projects, so it falls outside FCA regulation.

This means:

• No FCA protections apply (unlike residential mortgages)
• Lenders have more flexibility in terms and pricing
• Professional standards still apply through industry bodies

Can mezzanine finance be used for land acquisition?

Yes, but it’s more common for build costs. Some developers use mezzanine to top up land purchase bridging finance, then refinance the whole stack into senior + mezzanine development finance once planning is secured.

Typical structure:

1. Land purchase:Bridging finance (70-75% LTV) + mezzanine (10-15% LTV) + equity (10-15%)
2. Planning secured:Refinance into senior development finance (65-70% LTGDV) + mezzanine (15-20% LTGDV) + equity (10-15%)
3. Build phase:Drawdown in stages as project progresses
4. Exit:Refinance or sell completed units

What’s the difference between mezzanine and second charge bridging?

Mezzanine finance is specifically structured for development projects, with:

• Drawdown in stages aligned with build progress
• Interest rolled up until exit
• Longer terms (12-24 months)
• Monitoring surveyor inspections at each stage
• Tied to senior development finance

Second charge bridging is typically:

• Lump sum advance (all funds released upfront)
• Monthly interest payments (or rolled up for shorter terms)
• Shorter terms (3-12 months)
• Used for acquisitions or refurbishments rather than ground-up development
• Can sit behind any first charge (not just development finance)

How do I know if mezzanine finance is right for my project?

Ask yourself:

• Is my senior lender capped at 65-70% LTV, leaving me short of funds?
• Do I have at least 3 completed developments?
• Is my project viable with strong exit potential?
• Am I comfortable with 12-18% interest rates on the mezzanine portion?
• Do I want to preserve cash for other opportunities?

If you answered yes to all five, mezzanine finance is likely a good fit. Contact me for a no-obligation assessment.

What are the typical interest rates for mezzanine finance?

Mezzanine finance typically costs 12-18% per annum, significantly higher than senior debt (6-9%) due to the increased risk of the subordinated position.

Factors affecting your rate:

• Developer experience:5+ completed developments = lower rates
• Project type:Residential new build = lower rates than commercial conversions
• LTV:80% combined LTV = lower rates than 90% combined LTV
• Exit strategy:Pre-sold units or strong refinance route = lower rates
• Location:Prime locations = lower rates than secondary markets

Example cost comparison:

Senior debt only (70% LTV):

• £700k at 7.5% for 18 months = £78,750 interest

Senior + mezzanine (85% LTV):

• £700k senior at 7.5% = £78,750
• £150k mezzanine at 15% = £33,750

Total: £112,500 (£33,750 extra to reduce equity from £300k to £150k)

Do I pay interest monthly or is it rolled up?

Most mezzanine lenders allow interest to be rolled up (added to the loan balance) until project completion. This preserves your cash flow during the build phase.

Typical structure:

• No monthly payments during the build
• Interest compounds and is added to the loan balance
• Total debt (principal + rolled interest) is repaid at exit from sale proceeds or refinance

Some lenders offer a discount (typically 0.5-1% lower rate) if you pay interest monthly, but most developers prefer to roll up to preserve cash for the build.

Can I get mezzanine finance for projects in Scotland?

Yes. Mezzanine finance is available for projects across Scotland, including Edinburgh, Glasgow, Aberdeen, Dundee, and other cities and towns.

Scotland-specific considerations:

• Scottish legal system requires solicitors familiar with second charges and intercreditor agreements
• Valuation and monitoring surveyors must be RICS-registered and familiar with the Scottish market
• Exit routes (refinance or sale) should be realistic for the Scottish property market

I’m based in Dundee and work with developers across Scotland, so I understand the local market dynamics and can connect you with appropriate lenders, solicitors, and surveyors.

What documentation do I need to apply for mezzanine finance?

Project documentation:

• Site address and legal title
• Planning permission (full or detailed, not outline)
• Architect’s drawings and specifications
• Quantity surveyor’s cost report
• Comparable sales evidence for GDV
• Build programme/timeline

Developer documentation:

• CV and development experience summary
• Details of previous projects (addresses, costs, GDV, photos)
• Last 3 years’ personal tax returns
• Last 3 years’ company accounts (if developing through a company)
• Last 3 months’ personal and business bank statements
• Credit report

Senior debt documentation:

• Senior lender’s offer letter or agreement in principle
• Senior debt terms (amount, rate, LTV, drawdown schedule)
• Confirmation that senior lender accepts subordinated debt

What’s an intercreditor agreement and why is it needed?

An intercreditor agreement is a legal contract between the senior lender and mezzanine lender that sets out:

• Priority:Senior lender gets paid first in all circumstances
• Control:Senior lender controls the project and can step in if things go wrong
• Drawdown:Mezzanine funds are released in line with senior lender’s monitoring
• Exit:Senior debt must be repaid in full before any mezzanine repayment

Why it’s needed:

• Protects the senior lender’s first charge position
• Gives the mezzanine lender clarity on their rights and obligations
• Prevents conflicts between lenders during the project

Cost: Typically £2,000-£5,000 in legal fees (split between lenders or paid by the developer, depending on negotiation).

What happens if the project is delayed or the GDV is lower than expected?

If the project is delayed:

• You’ll need to extend the term (typically 6 months at a time)
• Expect higher interest rates during the extension (typically +2-3% per annum)
• Additional monitoring and reporting may be required
• Extension fees (1-2% of facility) will apply

If the GDV is lower than expected:

• The senior lender may reduce their facility (as they lend based on % of GDV)
• The mezzanine lender may also reduce their facility
• You may need to inject additional equity to complete the project
• In extreme cases, lenders may require the project to be sold to recover their debt

Risk mitigation:

• Always use conservative GDV assumptions (based on comparable sales, not optimistic projections)
• Include a 10-15% contingency in your build costs
• Have access to additional equity or credit lines in case of overruns

Is mezzanine finance more expensive than bringing in a joint venture partner?

It depends on your profit margin.

Mezzanine finance:

• Fixed cost (interest + fees)
• You retain 100% of profit after debt repayment
• No partner involvement in decisions

Joint venture equity:

• No debt cost
• Partner typically takes 30-50% of profit
• Partner may want input on decisions (design, contractors, sales strategy)

Example comparison (£2m GDV project):

With mezzanine:

• Total debt cost: £150k (interest + fees)
• Developer profit: £350k (assuming £500k gross profit)
• Net to developer: £350k

With JV partner (50/50 split):

• No debt cost
• Gross profit: £500k
• Net to developer: £250k (50% of £500k)

Result: Mezzanine is more profitable if your gross profit exceeds 30% of GDV. Below that, JV equity may be cheaper.

Can I use mezzanine finance if I have adverse credit?

Possibly, but it’s more difficult. Mezzanine lenders focus on:

• Developer experience(more important than credit history)
• Project viability(strong GDV, realistic costs, clear exit)
• Senior lender in place(if a senior lender has approved you, mezzanine lenders are more comfortable)

Adverse credit considerations:

• Minor adverse (missed payments, defaults under £5k) may be acceptable for experienced developers
• Major adverse (CCJs, bankruptcies, repossessions) will significantly limit options
• Expect higher rates (16-20% instead of 12-15%) if adverse is accepted
• You may need to provide additional security or guarantees

Honest advice: If you have significant adverse credit, focus on securing senior debt first. If a senior lender approves you, mezzanine becomes easier.

How to Apply for Mezzanine Finance

Step 1: Initial Consultation

Contact me to discuss:

• Your project details (type, location, GDV, costs)
• Your senior debt position (agreed, in progress, or not yet arranged)
• Your development experience and track record
• Your funding gap and equity contribution

Step 2: Documentation Required

• Project details:Site address, planning permission, architect’s drawings
• Financial projections:Build costs (QS report), GDV (comparable sales evidence), profit forecast
• Developer experience:CV, details of previous developments (with photos/evidence)
• Senior debt:Offer letter or agreement in principle from senior lender
• Personal financials:Last 3 years’ tax returns, bank statements, credit report
• Legal:Proof of site ownership or acquisition contract

Step 3: Lender Selection & Application

I’ll:

• Match your project to suitable mezzanine lenders through my principal firm’s panel based on size, location, and experience requirements
• Prepare a detailed submission package
• Submit to appropriate lenders to secure competitive terms

Step 4: Offer & Legal Process

Once an offer is received:

• Review terms (rate, fees, drawdown structure, exit requirements)
• Instruct solicitors to handle intercreditor agreement (between senior and mezzanine lenders)
• Arrange valuation and monitoring surveyor (required by both lenders)

Step 5: Drawdown & Project Delivery

• Funds released in stages as build progresses (typically aligned with RIBA stages or senior lender’s drawdown schedule)
• Monitoring surveyor inspects and certifies each stage before release
• Interest rolls up (no monthly payments) until project completion

Step 6: Exit

• Refinance onto long-term buy-to-let or commercial mortgages, or
• Sell completed units and repay all debt from proceeds

Serving property developers across Scotland, England & Wales

Capital 8 Finance – Bridging your development funding gap with specialist mezzanine finance solutions.