Definition
LTC (Loan to Cost) is the ratio of the loan amount to the total project cost. Total project cost comprises the purchase (land) price and the full build cost. It is used primarily in development finance to assess how much of the project the borrower is financing with equity versus debt.
LTC is complementary to LTGDV. Where LTGDV tells the lender what their exposure looks like relative to the exit value, LTC tells them what proportion of the total cost outlay is being funded. A project with thin developer equity will show a high LTC — an indicator that the developer is less insulated against cost overruns.
Formula
LTC = Loan Amount ÷ (Purchase Price + Build Cost)
LTC uses loan amount (advances), not gross facility. Unlike LTGDV, which uses gross facility. Using gross facility in LTC would double-count finance costs.
Loan amount divided by total project cost equals LTC percentage.
Purchase + Build = Total Cost
Loan ÷ Total Cost = LTC %
Worked Example
Worked Example
Development scheme: site purchased at £900,000, build cost £1,200,000. Borrower seeking £1,680,000 in loan advances.
At 80% LTC the borrower is contributing 20% equity. This passes the majority of senior lenders' LTC criteria, which typically cap at 80–85%.
How Brokers Use LTC
LTC is the key metric for demonstrating skin in the game. A borrower with 20%+ equity through land ownership, prior spend, or cash contribution is demonstrably more aligned with the project succeeding than one relying on day-one 100% funding. Brokers should present the equity contribution clearly and distinguish between cash equity, land equity (cost vs current value), and developer margin on retained units.
When modelling LTC, ensure the build cost figure used aligns with the professional cost plan or monitoring surveyor’s report — not a preliminary estimate. Lenders will obtain an independent QS review for any meaningful development deal, and material discrepancies between the broker’s figures and the QS report will require explanation at credit.
How Lenders Assess LTC
Lenders assess LTC alongside LTGDV and the project margin (profit on cost / profit on GDV). A project with a high LTC but exceptional margin — because GDV significantly exceeds total cost — may receive more flexibility. Lenders stress build costs upward (typically +10–15%) to model what happens to LTC if the contractor underestimates.
Retained equity and professional experience are mitigants. A developer with a track record of delivering similar schemes within budget, supported by the same contractor and professional team, represents materially lower cost-overrun risk.
Common Mistakes
- Including finance costs in total cost. Finance costs (interest, arrangement fee, exit fee) are not part of LTC. Adding them creates a circular reference and results in a lower, misleading LTC.
- Using gross facility instead of loan advances. Unlike LTGDV, LTC uses the loan amount (advances). Using gross facility inflates the numerator and overstates LTC.
- Understating build costs. Presenting a build cost below what a professional QS would support reduces LTC on paper but will be identified at the monitoring stage and can jeopardise the facility.
Frequently Asked Questions
What does LTC include in total cost?
Total project cost is the sum of purchase (land) cost and build cost. It does not include finance costs — adding those would create a circular dependency because finance costs depend on the loan, which depends on the LTC. Some lenders define total cost differently, so always confirm the denominator used.
What is a typical LTC limit?
Most development lenders apply an 80–85% LTC cap at the senior level. Specialist and higher-risk lenders may stretch to 90%. Mezzanine lenders can push combined LTC above 90% but only in strong-covenant scenarios.
How do LTC and LTGDV interact?
LTC and LTGDV are independent constraints. A deal must satisfy both. A thin-margin scheme might pass LTC (low total cost, high loan) but breach LTGDV (GDV not high enough relative to facility). Both must be modelled before submission.
Does LTC change during a project?
LTC is typically a day-one metric for the full project. For staged development finance, lenders monitor against agreed draw schedules. If build cost overruns materialise, effective LTC worsens even if the loan amount stays fixed.
Is land cost always included in the LTC calculation?
Yes. LTC is loan ÷ (purchase price + build cost). Some lenders use 'total project costs' which may include site-specific fees such as planning and professional fees — always clarify the denominator with the specific lender.