Stretch the debt, protect the equity.
Subordinated capital from £250k to £15m sitting behind your senior facility, taking combined leverage to 80% of GDV. When it earns its cost, when it does not, and how the intercreditor actually works.
What is mezzanine finance?
Mezzanine is a second layer of debt secured by a second charge behind your senior development or bridging lender. The senior facility might take you to 65% or 70% of GDV; mezzanine tops the stack up to around 80%. The difference comes straight off the equity you need to put in.
It is priced for the position it holds. If a scheme underperforms, the mezzanine lender loses money before the senior lender does, and the rate reflects that. Treating mezzanine as expensive senior debt is the wrong frame; it is cheap equity. The comparison that matters is not 1.35% per month against 8% per annum, but against the returns the released equity can earn in your next deal.
The economics, honestly
Take a £10m GDV scheme. Senior at 70% LTGDV leaves £1.5m of cost to fund after your £1.5m equity minimum. Mezzanine to 80% releases £1m of that. If that £1m seeds a second scheme returning 20% on equity while the mezzanine costs you the equivalent of a low teens annual rate on a much smaller tranche, the maths works. If you have no second scheme, it usually does not. We will run both versions of that calculation with you before recommending anything.
The intercreditor
Your senior lender must consent, and the two lenders sign an intercreditor agreement setting out priority, cure rights and enforcement. Not every senior lender accepts every mezzanine provider, which is a matching problem before it is a pricing problem. We arrange mezzanine from providers your senior lender will accept and manage the intercreditor process end to end.
Mezzanine finance FAQs
What is mezzanine finance in property?
A second charge layer of debt behind your senior facility, topping combined leverage up to around 80% LTGDV so you commit less equity per scheme.
What does it cost?
From around 1.35% per month on the mezzanine tranche, priced on combined leverage. Judge it against the return on the equity it releases, not against senior debt pricing.
Does my senior lender have to agree?
Yes, via an intercreditor agreement. We match you with mezzanine providers your senior lender accepts and handle the process.
When does it make sense?
Spreading equity across more schemes, funding a cost overrun without repricing senior debt, or closing a strong deal when equity is short. When there is no productive use for the released equity, it rarely earns its cost.