Mezzanine Finance Calculator

Most senior development lenders advance between 55% and 70% of total development costs, and they typically cap their exposure at 60–65% of GDV. On a £5m GDV scheme with £3.5m of total costs, a senior lender advancing 65% of GDV would provide £3.25m — leaving you to fund £250,000 of costs plus a meaningful equity buffer from your own resources. That can mean tying up £500,000 to £750,000 of cash, which may be earmarked for your next site.

Mezzanine finance plugs that gap. A mezz lender will typically advance up to 15–20% of GDV on top of the senior loan, taking overall gearing from 65% to 80–85% of GDV. On the same £5m scheme, that could reduce your required equity from 35% of costs to as little as 10–15% — freeing capital to run multiple projects concurrently.

Mezzanine works best when your expected profit on cost comfortably exceeds 20%. Lenders will stress-test the deal assuming GDV falls and costs overrun; if the margin is thin, they will either decline or impose punitive rates. Schemes with planning risk still to resolve, contractor conflicts, or an illiquid exit market are unlikely to attract mezz funding on attractive terms.

Mezzanine finance is priced to reflect its subordinated position. Because a mezz lender sits behind the senior lender in the security waterfall, it faces significantly more risk and charges accordingly. Current market rates run from approximately 10% per annum at the lower end — for experienced developers on strong schemes in liquid markets — to 15% per annum or above for higher-risk projects or less experienced applicants.

Most mezzanine is offered on a rolled-up basis: interest accrues monthly and is added to the outstanding balance rather than being paid as monthly cash. This is important for cash-flow modelling because the effective loan balance grows over time. On a £500,000 mezz facility at 12% per annum, rolled for 18 months, you would owe approximately £595,000 on exit — almost £95,000 more than the drawn balance.

Arrangement fees of 1.5–2% of the mezz facility are standard, and exit fees of 1% are common. Some lenders combine a lower interest rate with a profit share, typically 15–25% of the developer's profit above a threshold return. Profit-share mezz can be cheaper in absolute terms if the project performs, but it dilutes your upside. Fixed-rate mezz is generally preferred by developers who are confident in their margin.

Understanding the intercreditor relationship is essential. The senior lender holds a first legal charge over the site and has priority claim on any sale proceeds. The mezzanine lender takes a second charge, meaning they are only repaid after the senior lender is fully satisfied. This subordination is formalised in an intercreditor agreement, which also limits what the mezzanine lender can do if the senior lender calls an event of default.

Not all senior lenders will permit mezzanine. Some mainstream development finance lenders operate clean-charge policies and will only lend if they hold the sole first charge. Others actively co-lend with approved mezz providers, and some lenders offer stretch senior loans — advancing to 75–80% LTC themselves at a blended rate, removing the need for a separate mezz tranche.

When your senior lender does permit mezz, you will need both parties to approve each other's term sheets before you can draw. Allow three to four weeks for intercreditor negotiations to be documented. Your solicitor will need to manage both sets of lender requirements simultaneously, which adds to legal costs — budget an additional £3,000–£7,000 for the intercreditor work.

Mezzanine lenders apply tighter credit criteria than their senior counterparts because they are taking more risk. The most important factor is the loan-to-GDV position after both tranches: if the combined senior and mezzanine debt represents more than 85% of GDV, most lenders will decline. They stress the GDV by 10–15% to model a downside scenario and will only proceed if the stressed position still shows adequate coverage.

Developer track record carries significant weight at the mezzanine level. Lenders want to see at least two or three completed schemes of comparable scale, with exit evidence — sales statements, completion statements, or Land Registry data. First-time developers rarely access mezzanine finance without a joint venture partner who brings the required experience.

The planning permission must be implemented and the design must be market-ready. Mezzanine lenders will commission their own RICS valuation and will not rely solely on the developer's comparables. They will also review the build contract, the contractor's financial standing, and the professional team's indemnity insurance. A robust monitoring surveyor appointment — often a condition of the senior facility — provides comfort at the mezz level too.