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Mezzanine and second charge debt for developers

Senior debt rarely covers the whole cost of a scheme. The gap has to come from somewhere: your own cash or a second charge lender.

Each option costs something different. We help you pick the one that leaves you with the best deal at the end, not just the most money at the start.

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Who it's for

Developers with a viable scheme who are short of cash, or want to keep cash for the next one.

  • Developers whose senior loan leaves a funding gap
  • Schemes where the land is bought but the build needs more cash
  • Developers who would rather pay a rate than give away profit
  • Borrowers who cannot get stretched senior at the leverage they need
How it works

How mezzanine debt works

Think of the funding stack in layers. Senior debt sits at the bottom with the first charge. Your own cash sits at the top and takes the first loss. Everything in between carries more risk than senior debt and is priced to match.

Mezzanine debt

A second loan behind the senior lender, usually with a second charge and an intercreditor agreement. More expensive than senior, but you keep your profit.

Second charge and intercreditor

The senior lender has first claim on the asset, the second charge lender ranks behind them. The two lenders sign an intercreditor agreement setting out who can act and when.

What it costs

Interest is higher than senior, often rolled up and paid on exit, with an arrangement fee on top. Judge it on total cost over the term, not the headline rate.

Stretched senior as an alternative

Sometimes one higher leverage loan is simpler than senior plus mezzanine. Worth comparing on total cost.

Regulatory note: TMP Land Consultants Ltd is not authorised or regulated by the Financial Conduct Authority and only offers non-regulated services. We work with commercial and investment borrowers only and do not arrange regulated mortgages, regulated consumer buy to let agreements or any other regulated activity. We advise and introduce commercial debt enquiries to HyLend Limited, a credit broker and full member of the NACFB. HyLend is our preferred partner for commercial debt brokerage, but we are not limited to them. HyLend arranges non-regulated commercial finance only, and we may receive a share of HyLend's fee. Nothing on this page is an offer of credit or financial advice, and all figures are indicative and subject to underwriting, valuation and lender approval. Read our regulatory information.

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What we need from you

Have these to hand

  • Full development appraisal with GDV, costs and profit
  • Senior debt terms already offered, if any
  • How much cash you are putting in, and in what form
  • Planning consent and status of conditions
  • Your track record and the professional team
  • What you are willing to give: rate, security or control

Don't have it all? Send what you have. We will tell you what matters most.

Short of cash for the next scheme?

Send us the appraisal and any senior terms. We will tell you which option makes sense.

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Track record

Our team has advised on schemes from small residential sites to a 300+ unit consented scheme, so we know how lenders look at layered debt.

How we work

4 steps, one team

  1. 01

    Appraisal review

    We stress test the appraisal. Mezzanine lenders will do the same, so it is better we find the weak points first.

  2. 02

    Options

    We set out the realistic structures and what each one costs you at the end of the scheme.

  3. 03

    Introduction

    We introduce the deal through our broker partner HyLend to lenders who suit the scheme and the stack.

  4. 04

    Heads of terms

    We help you compare offers and negotiate the points that matter: priority, control, defaults and exit.

Common questions

What is mezzanine finance in property development?

A second loan that sits behind the senior lender. It fills part of the gap between senior debt and your own cash. It costs more than senior because it carries more risk.

What is an intercreditor agreement?

An agreement between the senior lender and the second charge lender that sets out who can act if things go wrong. Both lenders sign it before mezzanine funds.

Will my senior lender allow mezzanine?

Not always. Some senior lenders do not allow second charges. If they do, the two lenders sign an intercreditor agreement. This is why the stack needs planning together.

Is mezzanine cheaper than stretched senior?

On a rate basis, usually not. But one higher leverage senior loan can be simpler and cheaper to run over the whole term. We model both on total cost.

Does mezzanine always need a second charge?

Usually yes. Some lenders will offer unsecured mezzanine at a higher cost. Security changes what a lender can do if the scheme stalls, so read the terms carefully.

Do you lend the money yourselves?

No. We advise and introduce through our broker partner HyLend. We are not a lender and do not arrange regulated mortgages.

Insights

Further reading

Capital Advisory

Need to close a funding gap?

Share the scheme and the stack you have so far. We will set out the realistic options and the cost of each.

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