Five LTV Rules That Turn Your Project into a Fundable Loan Application
If you want a development loan between £100,000 and £5 million, the lender’s headline number is going to be LTV - loan-to-value - but LTV alone is a blunt instrument. The successful developer knows which LTV matters for which lender, how to change the calculation to their advantage, and when to accept a lower LTV for a cleaner, faster drawdown.
This article gives five hard rules you can apply immediately. Each rule comes with concrete examples, the maths you must show your lender, and the counterintuitive moves other developers miss. Read it, act on it, and you will materially improve your odds of getting the money on terms that let your project hit deadlines and margins.
Rule #1: Know Which LTV Lenders Will Actually Accept for Your Project Type
LTV means different things to different lenders. Mainstream banks often quote loan-to-value (LTV) against the current value of the security property, but development finance lenders use loan-to-GDV (gross development value) and loan-to-cost (LTC) far more. You need to match your project to the lender’s metric, not the other way round.
Examples: a house conversion with planning in place might get 60-70% of GDV from a specialist development lender; a clean buy-to-let portfolio acquisition may attract 60-75% LTV from a bank; an unbuilt plot often only gets 50-60% LTV unless you have planning and strong exit routes. If you present a lender with the wrong metric you’ll look naive and slow the process.
Practical steps: list the lenders in your target band - high-street banks, challenger banks, specialist development funds, private debt - and record what they actually lend on (LTV on current value, LTC, or LTV on completed GDV). Tailor your case papers and the figures you highlight. Don’t ask a bank for a 70% GDV deal if they only operate on current LTV - you’ll be wasting weeks.
Rule #2: Build LTV with Conservative Valuations - Break Down the GDV
Lenders distrust pie-in-the-sky GDVs. They want evidence: comparable sales, floor area assumptions, unit finishes, and a realistic sales timetable. A conservative GDV backed by comps will often get you a higher effective loan than an overoptimistic GDV that requires aggressive valuation discounts.
Worked example: site bought for £400,000. Build costs £800,000. Expected market sales (GDV) £1,800,000. A development lender offers 65% of GDV: that’s £1,170,000. But compute LTC: loan over total project cost (land + build + fees) of £1,350,000 gives 86.7% LTC - unacceptable. If you instead show a staged GDV breakdown (three flats at £300k, one house at £600k) and pre-sales for two units, the lender may treat those presales as reducing exposure and effectively increase their willingness to lend against the outstanding GDV.
How to act: produce a schedule for each unit showing floor area, comps, assumed finish, and expected marketing time. Bring in an RICS surveyor early if needed. If valuations are borderline, reduce scope marginally or accept a lower GDV to secure funding quickly - speed can beat an extra 5% GDV that never materialises.
Rule #3: Reduce Lenders’ Perceived Risk Before You Ask for a Higher LTV
Lenders don’t just look at percentages - they look at risk. You can’t talk up LTV without removing the main risk triggers. The fastest way to lift an offered LTV is to demonstrate controls that cut downside for the lender.
Risk reducers that materially move offers: fixed-price JCT contracts with reputable contractors, independent cost consultants certifying build costs, confirmed pre-sales or forward funding, planning conditions cleared, and experienced project managers on-board. A developer seeking 70% of GDV without any pre-sales and with a minimal track record is asking to be turned down.
Specific tactic: secure a staged pre-sale for one or two units at an agreed price with a reservation fee. This shrinks perceived market risk and lets the lender treat that portion of GDV as deliverable, often improving your effective LTV by 5-10 percentage points. Contrarian point: sometimes the best move is to take a smaller senior facility and bring in a small mezzanine partner rather than pushing for an inflated LTV that comes with onerous covenants or punitive interest rates.
Rule #4: Combine Senior Debt and Mezzanine Correctly if You Need to Stretch Beyond Standard LTV
When project returns warrant it, combining senior and mezzanine debt is a legitimate way to reach higher leverage. But many developers treat mezzanine like free money - it is not. Mezz is cheaper than equity but more expensive than senior debt and it changes your control and exit profile.
How the structure works in practice: https://www.propertyinvestortoday.co.uk/article/2025/08/6-best-development-finance-brokers-in-2025/ senior lender provides up to their LTV limit - say 60% of GDV. Mezzanine lender fills an additional 10-15% at a higher rate and with a subordinated security structure. The blended cost is higher, but the upfront equity need falls, which can improve internal rates of return on a tight but profitable scheme.
Example numbers: GDV £2,000,000. Senior at 60% = £1,200,000. Mezz at 12.5% = £250,000. Total debt = £1,450,000 (72.5% of GDV). Equity required = project costs minus debt. Compare the net-on-net IRR and decide if the incremental leverage justifies mezzanine costs and potential dilution or covenants.
Red flags: mezz lenders often want higher control at exit and may demand step-in rights on material slips. If your profit margin is narrow, adding mezz increases chance of covenant breaches. Contrarian stance: if your expected margin is under 20% on GDV, it is usually smarter to rework the scheme or bring more equity than to add mezzanine.
Rule #5: Nail Your LTV Maths - Common Pitfalls and How to Avoid Them
Loan-to-value sounds simple but it’s where deals fail. The three common mistakes are: using optimistic GDV without backing, ignoring capitalised interest and fees when calculating LTC, and failing to include abnormal costs. Lenders will do their own arithmetic and if your numbers don’t match theirs you will lose credibility.
How to calculate properly - quick checklist:
- Define the lender’s metric: LTV (current market value), LTC (total project cost), or LTGDV (loan to gross development value). Include all acquisition costs - SDLT, agent fees, legal, and abnormal groundworks - in project cost when calculating LTC. Include interest during construction, monitoring fees, and sales costs when cashflowing the project; these affect usable loan amounts and the lender’s margin of safety.
ItemValue Land acquisition£400,000 Build cost£800,000 Fees, SDLT, sales costs£150,000 Contingency£50,000 Total project cost£1,400,000 GDV£1,800,000 Senior lender offer (65% GDV)£1,170,000 LTC (senior loan / total cost)83.6%
In that example, the senior loan looks high against total project cost. Lenders will demand either additional security or lower drawdown. Fixes include adding equity, bringing in a mezzanine tranche, reducing contingency overlap, or slicing the development into phases to lower the immediate exposure.
Your 30-Day Action Plan: Improve Your LTV Position and Close Your Next Development Loan
Don’t waste another month sending generic applications. Here is a tight 30-day plan that gets you to lender-ready quickly.
Day 1-3 - Prioritise and prepare: Select three lender types that match your project metrics. Prepare a two-page executive summary showing GDV breakdown, phased programme, and key team names. Day 4-7 - Valuation evidence: Pull three comparable sales per unit type and order a desktop RICS if necessary. Create a unit-by-unit GDV schedule. Day 8-12 - Cost certainty: Obtain a contractor estimate or a JCT tender and a QS cost report. Include capitalised interest and fees in your LTC. Day 13-17 - Risk mitigation: Secure pre-sales or expressions of interest with reservation fees where possible. Line up a contingency and show who will manage sales. Day 18-22 - Financial pack: Build a one-page cashflow, a project budget schedule, and a lender-friendly drawdown plan. Show worst-case sensitivity (10-15% GDV fall). Day 23-26 - Approach lenders: Send tailored packs to your three target lenders, highlighting the metric they care about. Be upfront about what you need and how you cover downside. Day 27-30 - Negotiate and commit: Treat term offers like procurement. Compare headline rate, fees, exit covenants, and true usable loan. If you need extra lift, request mezzanine term sheets and model blended cost vs equity dilution.Final note: lenders fund clarity and control. If you present coherent LTV maths, conservative GDV, a credible team, and a clear exit, you’ll get funded quicker and cleaner. If you want help reviewing your numbers before you approach lenders, have your pack independently checked - a short professional critique often saves weeks and thousands in abortive costs.