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Camden Development Finance
Reduce Your Equity Requirement

Mezzanine Finance in Camden

Top up your senior development loan with mezzanine finance for up to 90% combined Loan-to-Cost. Reduce your equity contribution and maximise your capital efficiency across Camden development projects.

90%
Combined LTC
1.0%
Rates From (pm)
10%
Min Developer Equity

What Is Mezzanine Finance?

Mezzanine finance is a specialist form of property development lending that sits as a second charge behind the senior development loan. Its purpose is to bridge the gap between what the senior lender provides — typically 60-70% of total project costs — and the developer's available equity. By filling this gap, mezzanine finance can reduce the developer's cash equity contribution from 30-35% of project costs to as little as 10%, fundamentally changing the economics of a development project.

For Camden developers, mezzanine finance is a powerful tool for capital efficiency. The borough's property values — which range from around £580,000 in Gospel Oak to over £1.5 million in Hampstead — mean that even modest development schemes require substantial capital. A conversion project in Kentish Town with total costs of £1.5 million would require £450,000 of equity with senior debt alone. Adding mezzanine finance to achieve 90% LTC reduces that equity requirement to £150,000, freeing £300,000 for deployment in other projects or as a contingency reserve.

The trade-off is cost: mezzanine interest rates are higher than senior debt rates, typically ranging from 1.0% to 1.5% per month compared to 0.65-0.95% for senior lending. This reflects the greater risk borne by the mezzanine lender, whose second charge position means they would be repaid only after the senior lender in the event of default. However, when the financial modelling is done correctly, the additional interest cost is more than offset by the amplified return on the developer's equity and the ability to pursue projects that would otherwise be beyond reach.

How Mezzanine Fits in the Capital Stack

The capital stack describes the layers of funding in a development project, ordered by security priority. Mezzanine occupies the middle position between senior debt and developer equity.

Without Mezzanine

Standard senior debt only

30%
Developer Equity£450K
70%
Senior Debt£1,050K

Total Project Cost

£1,500,000

Equity Required

£450,000

With Mezzanine

Senior debt + mezzanine finance

10%
Developer Equity£150K
20%
Mezzanine£300K
70%
Senior Debt£1,050K

Total Project Cost

£1,500,000

Equity Required

£150,000

Equity saving: £300,000

Capital freed up for additional projects or contingency reserves. On a Camden scheme generating 20% profit on cost, deploying that £300,000 into a second project could generate an additional £60,000+ in profit.

The Intercreditor Agreement Explained

When two lenders both have security over the same property, a legal framework is needed to govern their relationship. This is the intercreditor agreement (ICA), and it is one of the most important documents in a mezzanine-funded development. The ICA establishes the rules that both lenders must follow throughout the life of the loan, protecting the interests of all parties including the developer.

Payment Priority

The ICA establishes that the senior lender has priority for all payments. Interest and principal on the senior facility must be paid before any payments to the mezzanine lender. This waterfall structure is fundamental to the pricing differential between the two layers.

Enforcement Rights

The ICA typically restricts the mezzanine lender from taking enforcement action (such as appointing a receiver) without the senior lender's consent. This prevents conflicting enforcement actions that could damage the value of the security for both parties.

Information Sharing

Both lenders receive copies of monitoring surveyor reports, drawdown requests, and any material project communications. This transparency ensures both lenders can monitor the project's progress and identify any issues that might affect their position.

Consent Provisions

Certain decisions — such as changes to the build programme, contractor substitution, or facility extensions — require the consent of both lenders. The ICA sets out the process and timescales for obtaining these consents to avoid unreasonable delays.

We Manage the Intercreditor Process

Negotiating the intercreditor agreement can be one of the most time-consuming aspects of arranging mezzanine finance. Different senior and mezzanine lenders have different standard positions, and reaching agreement can require multiple rounds of legal negotiation. Our experience in structuring mezzanine deals for Camden projects means we know which combinations of senior and mezzanine lenders work well together, which lenders have pre-agreed intercreditor terms, and how to anticipate and resolve common points of contention. This expertise can save weeks in the overall arrangement timeline.

Mezzanine Finance vs Stretched Senior

Both structures achieve higher leverage than standard senior debt, but they differ in complexity, cost, and maximum leverage. Understanding when each is appropriate is key to optimising your Camden development's funding structure.

FeatureSenior + MezzanineStretched Senior
Maximum LTCUp to 90%Up to 80-85%
Number of LendersTwo (senior + mezzanine)One
Intercreditor AgreementRequiredNot required
Arrangement Timeline4-8 weeks3-5 weeks
Blended Rate (indicative)0.90 - 1.10% pm0.85 - 1.05% pm
Legal ComplexityHigher (two sets of legal docs)Lower (single facility)
Flexibility During BuildTwo lenders to negotiate withSingle point of contact
Best ForMaximum leverage (85-90% LTC)Simpler execution at 75-85% LTC

Choose Mezzanine When:

  • You need maximum leverage (85-90% LTC)
  • The project has strong margins to absorb the cost
  • You have time for the intercreditor process
  • You want to minimise your equity across multiple projects

Choose Stretched Senior When:

  • 75-85% LTC is sufficient for your needs
  • Speed of execution is a priority
  • You prefer a simpler deal structure
  • You want a single lender relationship to manage

When Mezzanine Finance Makes Sense for Camden Projects

Mezzanine finance is not appropriate for every development project. It adds cost, complexity, and an additional lender relationship to manage. However, when used strategically, it can be a powerful catalyst for growing a development business in Camden. The decision to use mezzanine should be driven by your overall business strategy and the financial characteristics of the specific project.

The clearest case for mezzanine is when a Camden project offers healthy profit margins — typically 20% or more on total costs — but your available equity is limited. Consider a developer with £300,000 of available capital looking at a scheme in Kentish Town with total costs of £1.5 million and a GDV of £2.1 million. Without mezzanine, the developer would need to contribute £450,000 of equity (30% of costs) against a senior loan of £1,050,000. The scheme would be beyond reach. With mezzanine at 90% LTC, the equity requirement drops to £150,000, making the project viable and still leaving £150,000 of the developer's capital as reserves or seed funding for the next opportunity.

Another compelling scenario is portfolio scaling. An experienced Camden developer with a track record of successful completions in areas like Chalk Farm, Gospel Oak, and Bloomsbury can use mezzanine to run multiple projects simultaneously rather than sequentially. If your available equity would fund one project at 70% LTC senior debt, the same equity could fund three projects at 90% combined LTC. The aggregate profit from three projects, even after mezzanine interest costs, will typically far exceed the profit from a single project at lower leverage. This is how successful development businesses scale.

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Mezzanine Finance FAQ

Detailed answers to common questions about mezzanine development finance for Camden projects.

Mezzanine finance is a form of second charge lending that sits between the senior development loan (first charge) and the developer's own equity in the capital stack. It fills the funding gap by providing additional debt that the senior lender does not cover, allowing the developer to borrow a higher proportion of total project costs. For Camden development projects, mezzanine finance can take total borrowing from the typical 65-70% LTC offered by senior lenders up to 85-90% of total project costs, reducing the developer's cash equity requirement from 30-35% to as little as 10%.
Mezzanine finance rates typically range from 1.0% to 1.5% per month, plus an arrangement fee of 1.5-3% of the mezzanine facility. While these rates are higher than senior debt (which starts from 0.65% per month), the blended cost across the whole capital stack is the relevant measure. For example, on a scheme with 70% senior debt at 0.85% per month and 20% mezzanine at 1.2% per month, the blended rate across the 90% borrowed is approximately 0.93% per month. The key consideration is whether the cost of mezzanine is lower than the return on equity it frees up — in most Camden projects with healthy profit margins, the answer is yes.
An intercreditor agreement (ICA) is a legal document that governs the relationship between the senior lender (first charge) and the mezzanine lender (second charge). It establishes the priority of payments, defines each lender's rights in the event of default, and sets out protocols for communication and decision-making during the loan term. The ICA is essential because both lenders have a security interest in the same property. Key provisions include the senior lender's priority right to repayment, restrictions on the mezzanine lender taking enforcement action without the senior lender's consent, and information-sharing arrangements. We manage the intercreditor negotiation process to ensure both lenders' requirements are met efficiently.
Mezzanine finance is generally more difficult for first-time developers to access compared to senior debt. Mezzanine lenders take on higher risk by sitting behind the senior lender, so they typically require a developer with at least 2-3 completed projects. However, there are exceptions: if you have a strong professional team, a project with clear demand in a desirable Camden location, and sufficient personal net worth to demonstrate financial resilience, some mezzanine lenders will consider first-time developers. An alternative for first-timers is stretched senior finance, which provides higher LTC from a single lender without the intercreditor complexity.
Mezzanine finance increases your total borrowing costs because you are paying interest on an additional tranche of debt at a higher rate than senior lending. However, the impact on your absolute profit is often less significant than the impact on your return on equity. By reducing your cash contribution from, say, 30% to 10% of project costs, mezzanine finance allows you to deploy your available capital across a larger number of projects. If each project generates a 20% return on total costs, your return on the equity invested is significantly amplified when you use mezzanine leverage. We model the financial impact for every client so you can make an informed decision.
Mezzanine finance involves two separate lenders — a senior lender providing the first charge facility and a mezzanine lender providing a second charge top-up, governed by an intercreditor agreement. Stretched senior finance is provided by a single lender who offers a higher LTC ratio (typically 75-85%) all within one first charge facility. Stretched senior is simpler and faster to arrange because there is no intercreditor negotiation, but it may not reach the same leverage levels as a senior-plus-mezzanine structure (which can achieve 90% LTC). Stretched senior rates sit between standard senior and mezzanine rates. We advise on which structure is optimal based on your specific project parameters and timeline.
Mezzanine finance is most appropriate when you have a profitable project but insufficient equity to fund the gap above the senior loan. Common scenarios include: you want to preserve capital to run multiple projects simultaneously rather than tying all your equity into one scheme; you have identified an exceptional opportunity in Camden that requires more capital than you currently have available; or you are scaling your development business and want to maximise the number of active projects. It is less appropriate for marginal projects where the additional interest cost would erode the profit to unacceptable levels, or for very small schemes where the fixed costs of arranging mezzanine outweigh the benefits.
Mezzanine drawdowns are typically aligned with the senior facility drawdown schedule. The mezzanine lender's funds are usually drawn first (a 'day one' advance covering their proportion of the land cost and initial works), with subsequent drawdowns matching the senior facility's QS-certified stages. Some mezzanine structures involve the full mezzanine advance being drawn on day one, while others mirror the senior facility's phased drawdown. The exact mechanics are agreed between the senior and mezzanine lenders through the intercreditor agreement. We structure the drawdown schedule to optimise your interest costs while meeting both lenders' requirements.
A mezzanine lender takes a second charge over the development property, sitting behind the senior lender's first charge. In addition, most mezzanine lenders require a personal guarantee from the developer or the directors of the development SPV, a debenture over the borrowing company, and an assignment of the building contract and professional team appointments. The mezzanine lender's security is subordinate to the senior lender, meaning that in an enforcement scenario, the senior lender would be repaid in full before the mezzanine lender receives anything. This subordination is what drives the higher pricing of mezzanine compared to senior debt.
Yes, it is possible to layer in mezzanine finance after a senior facility is already in place, although this requires the senior lender's consent and the negotiation of an intercreditor agreement with the existing lender. Some senior lenders are more receptive to this than others. Ideally, the mezzanine requirement is identified at the outset so both facilities can be arranged simultaneously, which typically results in smoother execution and better terms. If you are mid-project and realise you need additional funding — perhaps due to cost overruns or an opportunity to acquire an adjacent site — we can explore mezzanine or alternative top-up options with your existing senior lender's cooperation.

Related Finance Solutions

Mezzanine works alongside other property finance products. Explore the full range of solutions available for Camden developers.

Development Finance

Up to 70% LTC

The senior debt facility that forms the foundation of your capital stack. Up to 70% LTC with rates from 0.65% per month. Mezzanine builds on top of this.

Learn More

Bridging Finance

5-10 day completion

Short-term funding for property acquisition and light refurbishment. Completes in 5-10 working days. Ideal for securing sites before arranging development finance.

Learn More

Development Equity

Up to 100% funding

When mezzanine isn't enough, equity partners can fund up to 100% of project costs through profit share and joint venture arrangements.

Learn More

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Whether you need to reduce equity on a single scheme or scale across multiple Camden developments, we'll structure the optimal mezzanine solution.