Mezzanine Finance in Islington
Reduce your equity requirement with mezzanine development finance. Second-charge lending that sits behind your senior debt facility, taking combined leverage up to 90% of total development costs for qualifying Islington projects.
What is Mezzanine Finance?
Mezzanine finance is a form of subordinated debt that sits between the senior development loan and the developer's own equity in the capital stack. It takes a second legal charge over the development property, behind the senior lender's first charge.
For Islington property developers, mezzanine finance serves a critical purpose: it reduces the amount of equity you need to invest in each project, freeing up capital to pursue additional schemes or to undertake larger projects than your equity alone would allow.
A typical scenario: your senior lender provides 65% of total costs, a mezzanine lender provides an additional 20-25%, and you contribute the remaining 10-15% as equity. Without mezzanine, you'd need 35% equity — potentially locking significant capital into a single scheme.
How Mezzanine Fits the Capital Stack
Mezzanine finance bridges the gap between what the senior lender provides and what the developer can contribute as equity.
Without Mezzanine
With Mezzanine
When to Use Mezzanine Finance
Preserve Capital
Keep more of your equity liquid for future projects or to maintain a cash reserve during the build programme.
Scale Up
Take on larger developments than your equity alone would support. A £5M scheme at 10% equity requires £500K vs £1.75M at 35%.
Multiple Projects
Spread your equity across two or three concurrent schemes rather than locking it all into one project.
Maximise Returns
Higher leverage means higher return on equity — provided the project margin exceeds the blended cost of debt.
Mezzanine Finance vs Stretched Senior
Both products achieve higher leverage, but they work differently.
| Feature | Mezzanine + Senior | Stretched Senior |
|---|---|---|
| Number of Lenders | Two (separate facilities) | One (single facility) |
| Max Combined LTC | Up to 90% | Up to 80% |
| Legal Complexity | Higher (intercreditor deed) | Lower (single charge) |
| Blended Rate | Higher (weighted average) | Lower (single rate) |
| Speed | Slower (two approvals) | Faster (single approval) |
| Flexibility | More flexible structuring | Less flexible, simpler |
| Best For | Maximum leverage needed | Moderate leverage, speed priority |
Understanding the Intercreditor Agreement
When mezzanine finance is used alongside senior debt, the two lenders enter into an intercreditor agreement (ICA). This legal document governs the relationship between the lenders and establishes:
- Priority of payments: The senior lender is repaid first from any proceeds
- Enforcement rights: Typically only the senior lender can enforce their security without the mezzanine lender's consent
- Standstill periods: The mezzanine lender agrees not to take action for a defined period if the borrower defaults
- Information sharing: Both lenders share monitoring reports and QS certificates
- Cure rights: The mezzanine lender may have the right to "cure" a senior debt default to protect their position
Not all senior lenders are willing to work alongside mezzanine providers. We identify lender combinations where both parties have established working relationships and agreed intercreditor terms, streamlining the process significantly.
Mezzanine Finance FAQs
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