Cover ratios and metrics
Loan to Cost (LTC)
Loan amount divided by total project cost. The cost-side counterpart to LTV, used on development and refurbishment-led commercial deals.
Loan to Cost is the loan amount expressed as a percentage of total project cost. On UK commercial mortgages LTC tends to show up on heavy-refurbishment cases, light-development cases and commercial bridging deals where there is a clear cost-to-complete component. Pure investment and owner-occupier deals use LTV.
How it is calculated
LTC = Loan amount / Total project cost
Total project cost normally includes:
- Property purchase price
- Stamp duty and legal costs
- Build or refurbishment costs (hard costs)
- Professional fees (architect, QS, surveyors, project manager)
- Contingency
- Interest roll-up and lender fees through the works period
The exclusions vary by lender. Some count interest roll-up in the LTC denominator, some exclude it. The number that lands on the heads of terms is the binding one.
Typical LTC ceilings
- Light commercial refurbishment: 75 to 80%.
- Heavy refurbishment with change of use: 65 to 75%.
- Commercial bridging on a value-add play: 70 to 80% on day one, often capped at 65 to 70% of end-value (LTGDV) as the binding constraint.
A worked broker example
A West Yorkshire investor buying a vacant office floorplate to convert to residential under permitted development. Purchase price 1.1 million. Build cost 600,000. Fees and contingency 90,000. Total project cost 1.79 million. End value on completion (GDV) 2.6 million.
A bridging lender offers 75% LTC (1,342,500) capped at 65% LTGDV (1,690,000). LTC is the binding constraint, so the deal is sized at 1,342,500. The investor needs to cover the remaining 447,500 of cost plus interest roll-up plus exit fees.
The trap is reading two ceilings (LTC and LTGDV) and assuming both stretch. The lower of the two binds. Almost always.
LTC versus LTV
LTV is for completed, stabilised property. LTC is for project lending where the building does not yet generate income. On a refurbishment bridge the lender will test LTC at completion of works, then test LTV when the property stabilises and refinances onto a term commercial mortgage. The exit metric is LTV, not LTC.