LTV, LTGDV and loan to cost explained

Loan to value (LTV)

Loan to value is the loan expressed as a percentage of the property's value. A £700,000 loan on a property valued at £1,000,000 is 70% LTV. It is the main measure for bridging loans and investment mortgages.

Most bridging lenders lend up to 70% to 75% of value on a first charge. Limits are usually lower for land, for specialist or harder-to-sell property, for second charges and for borrowers with adverse credit. Some lenders publish tiered pricing, where the rate rises as the LTV increases.

On a purchase, the value used is normally the lower of the purchase price and the lender's valuation. If you buy at £400,000 and the valuer says £380,000, a 75% LTV loan is based on £380,000. A small number of lenders will lend against a higher valuation where the property is being bought below market value, but this is the exception and needs a clear explanation.

Gross loan and net advance

The most common source of confusion is whether the LTV refers to the money you receive or the total loan. For most bridging lenders, the maximum LTV applies to the gross loan, which includes retained interest and any fees added to the loan.

Consider a 12-month bridge on a £500,000 property at a maximum of 70% LTV. The gross loan is £350,000. If the lender retains 12 months of interest at 0.85% a month, about £35,700, and adds a 2% arrangement fee of £7,000, the net advance is roughly £307,300, or around 61% of value. These figures are illustrative only.

When comparing lenders, look at both figures. A lender with a slightly higher rate that allows interest to be serviced, or measures LTV on the net advance, may leave you with more cash on day one. We set out the net advance alongside the rate for this reason.

Loan to gross development value (LTGDV)

Development lenders size facilities against the value of the scheme once it is finished, the gross development value. LTGDV compares the total facility, including land advance, build funding, rolled-up interest and fees, with that end value.

Most senior development lenders go to 60% to 70% of GDV. If a scheme has a GDV of £3,000,000, a 65% LTGDV facility would be up to £1,950,000 in total, including interest and fees.

Because GDV is a projection, lenders rely on an independent valuation of the completed scheme, supported by comparable sales of similar new-build or converted units nearby. Optimistic GDV figures are one of the most common reasons a facility comes back smaller than expected, so the evidence behind your figures matters.

LTGDV is also used on some heavy refurbishment and conversion bridges, where the lender funds works and sizes the loan against the value after completion.

Loan to cost (LTC)

Loan to cost compares the facility with the total cost of the project: land or purchase price, construction, professional fees and other costs in the appraisal. It measures how much of the project the lender is paying for, and therefore how much of your own money is at stake.

Development lenders usually fund up to about 90% of costs, so most schemes need some equity, typically towards the land. A lender may offer 70% LTGDV on paper, but if that figure exceeds 90% of costs on a high-margin scheme, the loan to cost limit becomes the constraint.

In practice, the facility is set by whichever limit is reached first: the LTGDV cap, the LTC cap, or a cap on the day-one land advance. Running all three against your appraisal shows where the binding limit sits.

Day-one advance on development sites

Development facilities usually include an advance towards the land on day one, at purchase or when an existing site is refinanced. Lenders often cap this separately, as a percentage of the purchase price or the site's current value, regardless of the overall LTGDV.

The result is that equity is concentrated at the start. A scheme might be funded at 90% of total costs, but with a much lower share of the land funded on day one, and the build funded in full through staged drawdowns. Knowing the day-one advance tells you how much cash you need to complete the site purchase, which is often the figure that decides whether a deal works.

Bridging the gap

Where the senior loan leaves a funding gap, there are several ways to close it:

• Stretch senior: a single loan at higher leverage, priced above standard senior debt
• Mezzanine finance: a second loan behind the senior lender, with higher pricing
• Equity partners: investors who contribute cash in return for a share of the profit
• Additional security: a charge over other property to support a larger bridging loan

Each option adds cost or gives away part of the return, so it is worth modelling them against your appraisal. We compare the structures side by side before approaching lenders.

How leverage affects pricing

Leverage and price are linked. Many bridging and development lenders publish tiered products, with the rate and sometimes the fee stepping up as the LTV or LTGDV rises. A loan at 60% LTV will often be noticeably cheaper than the same loan at 75% with the same lender.

That creates a choice. Borrowing less, and putting in more of your own money, usually reduces the rate, the fees and the interest retained, and widens the choice of lenders. Borrowing more preserves your cash for other projects, but at a higher cost. Neither is right in every case, and the answer depends on what else you could do with the capital.

It is also worth testing the numbers against a lower valuation. If the valuer comes in below your expectation, the maximum loan falls with it, and a deal structured at the top of a lender's range has the least room to absorb that. Building in some leeway avoids having to find extra funds shortly before completion.

Common questions

This guide is for general information only and should not be treated as legal, tax or financial advice. Lender requirements depend on the property and your circumstances.