In 2025, the structure of property development funding continues to evolve as the lending landscape adjusts to higher rates, cautious bank sentiment, and the rise of private credit. For developers, the distinction between senior and stretch senior debt has never been more relevant. These two forms of finance represent different levels of leverage and risk, each suited to a specific stage of market confidence and borrower profile.
Stretch senior lending — often described as the “missing middle” between traditional bank finance and mezzanine debt — has become one of the most sought-after solutions for experienced developers looking to maximise leverage without overpaying for capital.
At Willow Private Finance, we’ve seen this shift play out first-hand. Lenders are refining their product ranges, and developers are becoming more strategic about how they layer capital. The result is a more sophisticated funding environment, where understanding the subtle differences between senior and stretch senior debt can make a decisive impact on cost, control, and profit margins.
For additional background, see our related articles: Development Finance in 2025: What’s Changed and What Lenders Want Now and LTV, LTC, and GDV: The Three Numbers That Shape Your Property Deal.
The lending market in 2025 is defined by caution and recalibration. With base rates still higher than at any point over the last decade, developers face both rising funding costs and stricter underwriting from traditional banks. Those institutions remain focused on prime borrowers, low gearing, and straightforward build profiles.
This has left a wide gap between the leverage banks are comfortable providing — typically up to 60 or 65% loan-to-gross-development-value (LTGDV) — and the level of finance developers actually need to make projects viable in today’s cost environment. That gap has been filled by specialist lenders and debt funds offering stretch senior finance.
While more expensive than bank debt, stretch senior lending provides a valuable middle ground. It gives developers access to leverage levels of 70–75% GDV or up to 85% loan-to-cost (LTC), while maintaining a first charge over the asset. In practice, this structure allows borrowers to reduce their equity input while avoiding the complexity and higher pricing of mezzanine debt.
The trade-off comes in the form of greater oversight. Stretch senior lenders typically conduct more frequent project monitoring, insist on stronger reporting covenants, and demand clearer evidence of exit viability. Yet the flexibility and access to additional leverage make this an increasingly common route for professional developers working in sectors such as build-to-rent, mixed-use, and office-to-residential conversions.
Senior debt is the foundation of most development finance structures. It is provided by the most risk-averse lenders — usually banks, building societies, and a few institutional funds — and secured by a first legal charge on the development site. Because the lender’s exposure is protected by that first-ranking position, senior debt carries the lowest cost of capital.
Typically, senior lenders will advance around 55–60% of a project’s GDV or 60–65% of total cost. The facility is drawn down in stages against certified construction milestones and subject to strict monitoring surveyor oversight. Borrowers can choose to service interest monthly or roll it up into the facility, but drawdown control remains entirely with the lender.
Senior lenders focus heavily on the borrower’s financial strength, experience, and track record. They favour established developers with clean credit histories, strong balance sheets, and demonstrable delivery capability. While this conservatism offers stability, it also limits flexibility — particularly for projects with complex phasing, lower presales, or value-add components.
This is where stretch senior funding comes into play, offering a more pragmatic approach that still sits within the senior lending bracket but provides leverage and flexibility beyond what traditional banks will accommodate.
Stretch senior finance extends the boundaries of traditional senior lending. It is still secured by a first charge, but it provides a higher level of gearing — often up to 80–85% LTC — and is priced accordingly.
The lenders providing stretch senior are typically private banks, specialist development funds, or alternative finance houses. They understand construction risk and are comfortable operating in parts of the market where mainstream lenders may hesitate. Their underwriting is more commercial, focusing on the real strength of the deal rather than tick-box criteria.
Interest rates are higher than standard senior debt but significantly below mezzanine levels. Where a senior facility might be priced at 7–9% per annum, stretch senior could fall between 9–12%. Some facilities also include arrangement or exit fees that reflect the additional risk undertaken.
Importantly, stretch senior debt removes the need for a second charge lender. By operating as a single, unified first-charge facility, it simplifies legal structure, reduces duplication of professional costs, and shortens completion timelines. For developers, that can mean faster access to capital and greater clarity over total project costs from the outset.
Stretch senior lenders also tend to be more entrepreneurial in their assessment of borrower profiles. They may back developers with strong delivery track records even if their corporate structures or historic balance sheets fall outside mainstream banking appetite.
The difference between senior and stretch senior debt is primarily one of leverage, pricing, and risk tolerance. Senior lenders are governed by tighter regulatory constraints and maintain rigid lending parameters to protect depositors’ capital. Stretch senior lenders, by contrast, operate with more flexibility and a higher appetite for risk.
In practice, this means that senior lenders will advance a smaller proportion of the total project cost and expect the developer to contribute more equity. Stretch senior lenders, on the other hand, are prepared to fund a higher percentage, reducing the cash requirement for the developer but demanding stronger evidence that the project can meet both cost and exit assumptions.
The borrower experience also differs. Senior lenders typically offer lower rates but slower approvals, heavier compliance requirements, and less flexibility during the build. Stretch senior lenders can move quickly and are more open to complex schemes, but they expect detailed reporting, regular IMS updates, and transparent financial management throughout.
Both structures have their place, and the right choice depends entirely on the developer’s objectives. For conservative projects with ample equity and predictable sales, senior debt is often sufficient. For more ambitious or capital-intensive schemes, stretch senior may unlock the leverage required to make the numbers work.
Developers often use stretch senior finance to preserve equity for multiple projects rather than tying up all available funds in a single scheme. This is particularly valuable for those managing pipelines of three or more developments concurrently. By using a stretch senior facility, they can spread their equity across several deals while maintaining ownership and control of each project.
It is also a useful tool for responding quickly to opportunities. Because stretch senior lenders typically have shorter decision chains and fewer internal approval stages than banks, funding can be arranged rapidly — sometimes within weeks. This allows developers to move decisively when attractive sites come to market or when auction purchases require fast completion.
Stretch senior also proves advantageous in situations where developers wish to avoid the administrative complexity of mezzanine finance. A single facility governed by one set of terms, covenants, and monitoring arrangements simplifies both management and cost forecasting.
However, this flexibility comes at a price. Because lenders are taking more risk, they expect tighter oversight. Developers must be prepared to maintain detailed cashflow reporting and demonstrate that all contingencies are covered before additional drawdowns are authorised.
The decision to use stretch senior finance must always be informed by the project’s risk profile and the developer’s tolerance for exposure. Higher leverage magnifies both gains and losses. If costs overrun or GDV assumptions prove optimistic, the margin for error is smaller than with a lower-geared facility.
Lenders will also impose stricter covenants around valuations, drawdowns, and exit timing. Breaching those terms can trigger default clauses or additional margin requirements, so careful cashflow management and proactive communication are essential.
Another consideration is market liquidity. Not all lenders are active in the stretch senior space, and appetite can vary by region and asset type. Schemes in secondary locations or with limited resale depth may struggle to attract top-tier stretch senior funding. Developers must therefore approach the market strategically and engage with a broker who understands which lenders are currently active and how they structure their risk.
At Willow Private Finance, we regularly negotiate flexibility within these agreements, ensuring that developers retain operational control and can adapt to changing conditions without breaching their covenants.
Consider a developer undertaking a £10 million residential conversion with a projected GDV of £15 million. A traditional senior lender may provide funding up to 60% LTC — £6 million — leaving a £4 million equity requirement.
Using a stretch senior facility, the same project could be funded at 80% LTC, reducing the equity requirement to just £2 million. The developer retains an additional £2 million in liquidity for future opportunities, and while the overall cost of capital rises slightly, the internal rate of return improves due to efficient capital deployment.
This approach allows professional developers to operate more dynamically, particularly when managing multiple projects in a rising market or when equity must be deployed strategically across a broader portfolio.
Stretch senior finance is expected to remain a dominant feature of the property finance landscape throughout 2025. The convergence of high base rates, limited bank appetite, and growing institutional interest in private debt has created a permanent place for this type of capital.
We are also seeing increased collaboration between banks and private funds, forming joint facilities that blend bank-grade pricing with private lender flexibility. These hybrid structures provide both the reassurance of institutional backing and the agility of specialist funding.
For developers, this means greater opportunity but also greater scrutiny. Transparency, strong documentation, and the ability to demonstrate real delivery capability will determine access to the best terms. As the market matures, lenders will increasingly differentiate between experienced sponsors and speculative operators.
The developers who thrive will be those who treat their lender relationships strategically — understanding where each product fits, how risk is priced, and how to align funding structures with long-term business goals.
Willow Private Finance works with the full spectrum of lenders offering senior, stretch senior, and hybrid facilities. We help developers assess their capital requirements, model leverage options, and negotiate terms that optimise both cost and flexibility.
Our experience spans everything from prime residential developments and mixed-use regeneration to commercial conversions and build-to-rent schemes. By leveraging our relationships with private banks, debt funds, and institutional lenders, we ensure clients achieve the right blend of capital efficiency and lender confidence — without overextending risk.
Whether your project requires conventional senior debt, enhanced leverage through stretch senior funding, or a blended structure combining multiple layers, we can design a solution that delivers certainty from acquisition through to exit.
Q1: What is the main difference between senior and stretch senior debt?
A: Senior debt offers lower leverage at lower cost, while stretch senior extends loan limits for experienced developers seeking greater capital efficiency.
Q2: Is stretch senior riskier than mezzanine finance?
A: It carries moderate risk and remains a first-charge facility, unlike mezzanine which sits behind the senior lender and attracts higher rates.
Q3: Can stretch senior funding replace equity?
A: It can reduce equity requirements but not eliminate them entirely; lenders still expect meaningful developer commitment.
Q4: What kind of projects qualify for stretch senior?
A: Lenders favour experienced developers with clear exits, sound cost control, and projects in proven markets.
Q5: How does Willow Private Finance assist with stretch senior facilities?
A: We match developers with the right lenders, negotiate structure and pricing, and ensure smooth coordination from term sheet to drawdown.
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About the Author
Wesley Ranger is the Director of Willow Private Finance and has over 20 years of experience in property finance. He specialises in complex capital structuring and high-value development funding, including senior, stretch senior, and mezzanine facilities for both UK and international clients. His expertise lies in aligning developer strategy with lender appetite to secure optimal leverage and pricing.
Important Notice
This article is for general information purposes only and does not constitute personal financial advice. Development finance product availability, eligibility, and rates depend on your individual circumstances and may change at any time.
Always seek tailored advice before committing to any financial arrangement.
Willow Private Finance Ltd is authorised and regulated by the Financial Conduct Authority (FCA No. 588422). Registered in England and Wales.
