Loan to cost meaning: what LTC is and how lenders use it

It is one of the three numbers that decide how far a development facility stretches, alongside Loan-to-GDV and the day-one land advance. Get the LTC wrong in your appraisal and you either over-borrow and get declined, or under-borrow and tie up equity you needed for the next site.

This guide explains what LTC covers, how to calculate it, the caps lenders apply, and how it works with Loan-to-GDV. All ratios here are indicative. The lender confirms the exact figure on application after the valuation and the appraisal.

What does loan to cost mean?

Loan to cost is the loan divided by total project cost. Total project cost is not just the land price. It includes the purchase, the build costs, professional fees, finance costs, and a contingency.

A lender quoting “up to 80% LTC” is saying it will fund up to 80% of everything it takes to complete the scheme. You fund the rest from your own equity, or from a second layer of debt such as mezzanine.

The ratio matters because it tells the lender how much skin you have in the game. The lower the LTC, the more of your own money sits behind the loan, and the safer the lender feels. That is why low-LTC deals tend to price cheaper.

How to calculate loan to cost

The formula is short:

Total project cost usually breaks down into five parts:

• Land or property purchase price, including stamp duty and acquisition fees
• Build costs, the full construction budget from your QS or contractor
• Professional fees, covering architect, structural engineer, planning and project management
• Finance costs, the interest and arrangement fees over the build period
• Contingency, typically 5% to 10% of build cost to absorb overruns

Add those together for total cost. Divide the loan by that figure.

Worked example. A site costs £600,000. Build costs are £1.1m. Fees, finance and contingency come to £300,000. Total project cost is £2m. A lender offering £1.6m is funding 80% LTC, and you bring £400,000 of equity.

What LTC caps can you expect?

On mainstream senior development debt, lenders fund up to 80% Loan-to-Cost. That is the headline most experienced developers work toward. The figure you actually secure depends on your track record, the scheme, the location, and the strength of your exit.

The day-one advance against the land sits separately. Lenders typically release 60% to 70% of site value on day one, then fund the build in stages against verified progress rather than handing over a lump sum.

First-time developers usually see a tighter cap. Lenders look for relevant experience, a credible professional team, and more equity in the deal. If you cannot reach the senior LTC you need, mezzanine finance or stretched senior can bridge the gap. Both raise your total borrowing and price the extra risk accordingly.

Loan to cost vs loan to GDV

LTC and Loan-to-GDV (LTGDV) measure different things, and lenders apply both at once. Your facility is capped by whichever bites first.

Loan to cost measures the loan against what the project costs to build. It controls how much of your spend the lender will fund.

Loan to GDV measures the loan against Gross Development Value, the finished worth of the scheme valued today. Standard senior debt reaches 70% to 75% LTGDV. Stretched senior and mezzanine can push borrowing past 80% LTGDV on the right deal.

Here is why both matter. A scheme can pass the LTC test but fail the LTGDV test if the build is expensive relative to the end value, or the other way round on a high-margin conversion. Lenders size the loan to the lower of the two limits. A strong appraisal keeps both ratios comfortably inside the caps.

Why LTC matters for your deal

A realistic LTC tells you how much cash you need before you commit to a site. Misjudge it and the deal stalls late, after you have spent on legals and a valuation.

The ratio also drives your cost of finance. Lower LTC means lower lender risk, which usually means a cheaper rate. Mainstream residential schemes run at indicative rates of 6.5% to 9.5% per annum on senior debt, with higher-risk or first-time cases above that. Add mezzanine on top and that second layer prices at 12% to 20% per annum.

Equity efficiency is the other half of the picture. Stretching LTC sensibly frees up cash to run more than one scheme at a time. That is where a single well-structured stack, senior plus mezzanine where it earns its place, beats over-funding one build and starving the next.

How a broker structures LTC for you

Lenders quote different LTC caps for the same scheme because their appetites differ. Going direct, you see one view. Through a whole-of-market broker, you see the open market and the structure that funds your deal first time.

Vortex Finance is a property finance broker, not a lender. We arrange development finance through a panel of 100+ lenders and bring back indicative heads of terms in 3 to 5 working days. We are paid for outcomes, deals that complete, so there is no charge to get indicative terms and your lender shortlist.

For a full breakdown of senior debt, stretched senior and mezzanine, and how the three sizing ratios fit together, see our development finance hub.

This guide is information, not advice. The right LTC for your scheme depends on the property, your experience and your exit. A regulated adviser will confirm the regulatory status of your specific case on the call.

Frequently asked questions

On most deals we earn a procuration fee from the lender on completion. Our fee model is confirmed upfront before any application, and every fee is disclosed in writing before you commit.