Stretched Senior Development Finance: Higher LTV Without Mezzanine

Stretched senior development finance is a single-facility loan that provides higher leverage than a traditional senior debt product, effectively combining the senior and mezzanine layers of the capital stack into one instrument. Where conventional senior debt typically caps at 60-65% of Gross Development Value, a stretched senior facility can reach 70-75% LTGDV, or 80-85% of total project costs. This higher leverage is achieved within a single loan agreement, under a single set of legal documents, with a single first charge over the property.

The concept emerged in the UK market around 2018-2019 as lenders recognised that many developers were combining senior and mezzanine facilities at significant cost and complexity. By offering a single, higher-leverage product, stretched senior lenders eliminate the need for an intercreditor agreement, reduce legal costs, and simplify the borrower's ongoing reporting obligations. For a £4 million total development cost, a stretched senior facility at 85% LTC would provide £3.4 million, leaving the developer to contribute just £600,000 of equity.

We have seen stretched senior products gain considerable traction over the past two years, particularly among mid-market developers working on schemes with a GDV between £2 million and £15 million. The simplicity of dealing with a single lender, combined with competitive blended pricing, makes this an increasingly popular structuring option. However, stretched senior is not available from every lender, and eligibility criteria tend to be more stringent than for standard senior debt. Understanding when this product is appropriate and how to access it is what we cover in this guide.

Stretched senior facilities are typically priced using a blended rate structure that reflects the different risk profiles within the loan. The portion up to 65% LTGDV (the conventional senior tranche) might be priced at 7-8%, while the incremental stretch portion from 65% to 75% LTGDV carries a higher rate of 10-14%. The lender blends these rates to produce a single headline rate, which usually falls between 8% and 12% per annum depending on the overall leverage and borrower profile.

This blended approach often delivers a lower total cost than combining separate senior and mezzanine facilities. Consider a £5 million GDV scheme where the developer needs 75% LTGDV (£3.75 million). Option A uses a separate senior facility at 65% LTGDV (£3.25 million at 7.5%) plus mezzanine for the additional £500,000 at 16%. The blended rate is approximately 8.6%, but the developer also pays two sets of arrangement fees, two valuations, and two sets of legal costs, adding perhaps £80,000 to £100,000 in additional charges. Option B uses a stretched senior facility for the full £3.75 million at a blended rate of 9.5%. Despite the slightly higher headline rate, the total cost is often lower once fees and legal costs are factored in.

In our experience, the fee savings alone can justify a stretched senior approach. Arrangement fees on a standard senior facility run at 1-2%, plus 2-3% on the mezzanine tranche. A single stretched senior fee of 1.5-2.5% on the total facility is typically cheaper overall. On a £3 million combined facility, we have seen developers save between £30,000 and £60,000 in upfront costs by choosing stretched senior over a layered structure. These savings flow directly to your bottom line and can make the difference between a viable and unviable scheme. To explore whether stretched senior suits your project, submit your details through our deal room.

Stretched senior facilities come with more demanding eligibility criteria than conventional senior debt. Because the lender is taking on more risk by lending at higher leverage, they compensate by being more selective about the borrowers and schemes they support. Most stretched senior lenders require a minimum of two to three completed development finance projects of similar scale and type. First-time developers are generally not eligible for stretched senior products, as the lender needs confidence that the borrower can deliver the scheme within budget and on programme.

Scheme quality is equally important. Stretched senior lenders favour straightforward residential developments with strong local demand, full planning permission, and a clear exit strategy through unit sales. Complex schemes involving commercial elements, unconventional construction methods, or locations with limited comparable evidence are less likely to qualify. The development appraisal must demonstrate a minimum profit margin of 20% on GDV, and build costs must be supported by a fixed-price or design-and-build contract from a reputable contractor.

Geographic preferences vary by lender. Several stretched senior providers focus on London and the South East, where values are higher and demand is more predictable. Others have expanded into regional cities including Manchester, Birmingham, Leeds, and Bristol, where yields can be more attractive. We maintain relationships with eight to ten active stretched senior lenders across the UK and can quickly identify which are currently lending in your target area and at what terms. The market moves quickly, and a lender who was competitive three months ago may have changed their appetite, which is why real-time broker intelligence matters.

The decision between a stretched senior facility and a traditional senior-plus-mezzanine structure depends on several project-specific factors. Stretched senior offers simplicity, typically lower total costs, and a single lender relationship. The senior-plus-mezzanine approach offers more flexibility, potentially higher overall leverage, and the ability to use specialist providers at each tier of the stack.

If your total funding requirement is up to 75-80% LTGDV, stretched senior is often the better option. The single-lender structure means faster execution, lower legal costs, and simpler ongoing management. You report to one lender, deal with one monitoring surveyor, and negotiate one set of covenants. For time-sensitive projects or developers who prefer operational simplicity, this is a significant advantage. We have seen stretched senior facilities complete in as little as three weeks from application, compared to six to eight weeks for a layered senior-plus-mezzanine structure.

However, if you need leverage above 80% LTGDV, or if your project carries elements that a single stretched senior lender finds difficult to underwrite, the layered approach becomes necessary. Mezzanine finance providers are often more flexible than stretched senior lenders on criteria such as developer experience, planning status, and property type. By combining a conservative senior lender with a more aggressive mezzanine provider, you can sometimes achieve overall terms that are not available from any single lender. For a detailed comparison of mezzanine options, read our guide on mezzanine versus equity joint ventures.

We generally recommend that developers model both options before committing. The total cost of finance, including interest, fees, legal costs, and the time value of a faster or slower completion, should drive the decision. A stretched senior facility that closes three weeks earlier than a layered structure could save the developer £15,000 to £30,000 in holding costs alone, which often tips the balance.

While stretched senior offers clear advantages in terms of simplicity and cost, it is not without risks and limitations. The most significant risk is concentration. With a layered structure, your senior lender and mezzanine provider act as independent parties with separate decision-making processes. If your project encounters difficulties, the mezzanine lender may take a more flexible approach to rescheduling or restructuring because their economic interests differ from the senior lender. With a stretched senior facility, you have a single counterparty who controls your entire debt facility, and their decision in a distressed scenario is final.

Another limitation is the reduced leverage ceiling compared to what can be achieved with separate layers. While stretched senior can reach 75-80% LTGDV, a fully leveraged senior-plus-mezzanine structure can push to 85-90% LTGDV. For developers who need to minimise their cash equity contribution, the layered approach may be the only viable option. On a £10 million GDV scheme, the difference between 75% and 90% LTGDV is £1.5 million of additional debt, which frees up substantial capital for other projects.

Finally, stretched senior facilities typically have stricter covenant packages. Lenders may require personal guarantees, minimum cash reserves held on deposit, or profit participation arrangements in addition to the headline interest rate. We have seen stretched senior deals where the lender takes a 10-15% profit share above a certain threshold, which effectively introduces an equity-like element to what appears to be a pure debt facility. Always read the full term sheet carefully and model the worst-case cost scenario before committing.

Accessing stretched senior finance starts with having the right project and the right presentation. Prepare a comprehensive information memorandum that includes your development appraisal, planning documents, site photographs, contractor details, and a clear exit strategy. Lenders at this leverage level conduct more thorough due diligence than standard senior providers, so providing a complete package upfront accelerates the process and demonstrates professionalism.

Working with a specialist broker is particularly valuable for stretched senior facilities because the market is smaller and less transparent than the mainstream senior debt market. Many stretched senior products are not publicly advertised, and terms are negotiated individually rather than published on rate cards. We have relationships with every major stretched senior lender in the UK and can obtain indicative terms within 48 hours of receiving your project details. This market intelligence saves developers weeks of approaching lenders who are either not interested or not competitive for their specific scheme.

The application process for stretched senior typically involves an initial desktop review by the lender, followed by a site visit, independent valuation, and legal due diligence. From initial enquiry to drawdown, expect a timeline of four to six weeks for an experienced borrower with a complete package. Developers who have worked with the same lender previously may benefit from expedited processing, sometimes completing in under three weeks. To get started, submit your project through our deal room and our structuring team will assess whether stretched senior is the optimal solution for your capital stack.