The Three Leverage Metrics
Specialist lenders assess leverage through three independent metrics. Each measures a different dimension of the deal’s risk. A deal must pass all applicable metrics — passing LTGDV but failing LTC does not result in a partial approval.
LTV
Day-one purchase leverage
≤ 70–75%
Primary metric for bridging. Uses purchase advance ÷ current/purchase value.
LTC
Cost-to-funding ratio
≤ 80–85%
Primary metric for development. Uses loan advances ÷ (purchase + build).
LTGDV
Exit leverage
≤ 60–65%
Primary metric for development. Uses gross facility ÷ GDV.
The Credit Assessment Process
When a specialist lender receives a deal submission, the initial assessment follows a predictable sequence. Leverage metrics are checked first as a gating condition — only deals that pass the quantitative screen progress to qualitative underwriting.
- 01
Initial screen
Loan amount and property value are checked against LTV limits. For development deals, LTGDV and LTC are calculated from the submission figures. Deals that fail the hard cap at this stage are declined or sent back for restructuring.
- 02
Independent valuation
The lender instructs a panel RICS valuer to confirm the security value and GDV. If the valuation differs materially from the broker's estimate, leverage metrics are recalculated. This is the stage where most 'borderline' deals receive a final verdict.
- 03
QS review (development deals)
For development finance, an independent monitoring surveyor reviews the build cost plan. Inflated contingencies, missing professional fees, or unrealistic labour rates are corrected, and LTC is recalculated against the stressed cost figure.
- 04
Stress testing
Credit committees model downside scenarios: typically GDV reduced by 10–20% and build cost increased by 10–15%. The stressed LTGDV and LTC are assessed against the lender's limits.
- 05
Qualitative assessment
If leverage passes, the qualitative assessment begins: developer track record, exit strategy, planning position, market conditions, and borrower profile. A deal that passes leverage but fails qualitatively will still be declined.
What Creates Friction vs What Triggers Decline
Creates friction
- LTV within range but at maximum
- LTGDV 60–65% on stretched senior
- LTC 80–85% with limited equity
- GDV close to formal valuation
- Build cost requiring QS verification
- Developer track record in adjacent product
Triggers decline
- LTGDV breaching lender hard cap
- LTC above maximum with no equity plan
- LTV on above-market valuation
- GDV materially above formal valuation
- Build cost below QS minimum estimate
- No credible exit strategy presented
Common Mistakes Brokers Make on Leverage
- Calculating LTGDV on net advances, not gross facility. This understates leverage and will be recalculated immediately by the lender.
- Submitting without stress-testing leverage against the formal valuation. The valuation will determine lender exposure, not the broker’s estimate.
- Not modelling LTC and LTGDV simultaneously. Both metrics apply independently. A deal that passes LTGDV but fails LTC — or vice versa — cannot proceed without restructuring.
Frequently Asked Questions
Do lenders apply leverage thresholds as hard caps or soft limits?
Lenders maintain both. Hard caps are absolute limits — a 65% LTGDV cap means no exceptions regardless of other factors. Soft limits are preferred ranges where exceptions may be considered with compensating factors. Most lenders are transparent about their hard caps but not about where their soft limits flex.
What compensating factors can offset high leverage?
Strong compensating factors include: presales (contracted, not indicative), high profit on GDV margin, experienced developer with relevant track record, independent QS sign-off on costs, anchor tenants or pre-lets, and clean planning consent. None are guaranteed to offset a hard cap breach.
How do lenders stress leverage?
Lenders model a downside scenario — typically applying a 10–20% reduction to the formal GDV valuation and a 10–15% increase to build cost. They assess what LTGDV and LTC look like in this stressed scenario and whether the deal remains within acceptable limits.
What happens at credit committee if leverage fails?
Options include: reducing the loan amount, requiring additional equity, taking additional security on other assets (cross-charge), restructuring via mezzanine, or declining. Experienced brokers model these scenarios before credit committee and present options proactively.