When structuring funding for property development in London, understanding the difference between senior debt and mezzanine finance is essential. These two financing layers play distinct roles in the real estate capital stack, influencing project risk, return, and control.
At Fraser Bond, we advise investors and developers across the UK—especially in London—on how to optimise development finance using the right combination of senior loans and mezzanine capital. This guide explains the key distinctions, benefits, and when to use each.
Understanding Senior Debt – Foundation of Development Finance
Senior debt is the primary loan in most property development projects. It is typically secured by a first legal charge over the property and represents the lowest-risk form of capital in the funding structure.
Key Features:
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Loan-to-GDV or Loan-to-Cost: Typically up to 65%
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Interest Rate: Lower (5%–8%) due to lower risk
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Security: First charge on the asset
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Priority: Repaid before all other capital layers
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Providers: High street banks, challenger lenders, and specialist funds
When to Use:
Senior debt is suitable for established developers with strong track records, planning approvals in place, and defined exit strategies. It forms the base layer of most Fraser Bond development finance structures in London.
Understanding Mezzanine Finance – Bridging the Equity Gap
Mezzanine finance sits between senior debt and developer equity in the capital stack. It offers higher leverage, allowing developers to reduce their own capital injection while maintaining control of the scheme.
Key Features:
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Loan-to-GDV Extension: Up to 85% when combined with senior debt
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Interest Rate: Higher (10%–14%) due to increased risk
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Security: Often a second charge behind senior debt
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Priority: Repaid after senior debt but before equity
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Providers: Specialist mezzanine funds and private lenders
When to Use:
Mezzanine finance is ideal for high-growth projects in central London where investors seek to maximise returns while preserving equity. Fraser Bond helps clients identify cost-effective mezzanine solutions that align with risk appetite and exit timelines.
Senior Debt vs Mezzanine Finance – A Comparative Breakdown
| Feature | Senior Debt | Mezzanine Finance |
|---|---|---|
| Position in Capital Stack | First (lowest risk) | Second (higher risk) |
| Security | First charge on asset | Second charge |
| Interest Rate | 5%–8% | 10%–14% |
| Loan Size | 60%–70% LTV or LTC | Up to 20% gap coverage |
| Repayment Priority | First | After senior debt |
| Risk Level | Low | Moderate to high |
| Common Use | Core funding | Bridging equity gaps |
Case Study: Mixed-Use Development in South West London
Project Value: £9.2 million
Senior Debt: £6 million from a challenger bank
Mezzanine Facility: £1.2 million structured via a private fund
Equity Input: £2 million from the developer
Fraser Bond secured both finance layers, enabling the developer to retain full ownership while minimising capital input. The dual-structured stack reduced overall cost of funds while meeting build-out and exit targets.
Fraser Bond’s Development Finance Services
We support UK developers and property investors with:
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Senior debt sourcing through banks and private lenders
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Mezzanine finance structuring with competitive rates
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Capital stack modelling to optimise leverage
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Compliance and documentation advisory
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Full support from land acquisition to exit
Our London-based advisory team works closely with borrowers to ensure finance is not only secured—but structured intelligently.
Conclusion – Choose the Right Capital for Your Development
Knowing when to use senior debt vs mezzanine finance is critical for project profitability, legal security, and long-term scalability. With the right structure in place, investors can reduce risk, improve returns, and maintain control of their developments.
Visit FraserBond.com to speak with our development finance specialists or request a tailored capital stack consultation for your next London project.
