Cover ratios and metrics
Loan to Value (LTV)
Loan amount divided by the lender's valuation of the property. The headline gearing metric on UK commercial mortgages.
Loan to Value is the loan amount expressed as a percentage of the lender’s valuation of the property. On UK commercial mortgages it sits alongside cover ratios (DSCR or ICR) as one of two parallel underwriting tests. A deal must clear both, not just the more flattering one.
How it is calculated
LTV = Loan amount / Lender’s valuation
The denominator is the lender’s valuation, not the purchase price and not the borrower’s expectation. On a purchase the two normally line up. On a refinance or capital raise the lender’s valuation is the binding number.
Typical LTV ceilings on UK commercial mortgages
- Owner-occupier trading freeholds: 70 to 75%.
- Investment commercial, prime: 65 to 70%.
- Investment commercial, secondary or specialist: 55 to 65%.
- Semi-commercial (residential plus commercial mix): 70 to 75%.
- Commercial bridging: 65 to 70%.
- Owner-occupier on long-leasehold (under 70 years remaining): capped 60 to 65%.
These ceilings vary by lender. Shawbrook, InterBay Commercial and LendInvest sit at the higher end of the prime bands. The clearing banks (Lloyds, NatWest, Barclays, Santander) tend to sit at the conservative end on anything outside their core relationship book.
A worked broker example
A South Yorkshire light-industrial purchase. Price 800,000. Investor wants 70% LTV (560,000). The lender’s surveyor downvalues to 760,000, citing absorption risk on the unit’s specification. 70% of 760,000 is 532,000. The investor either tops up the equity cheque with the 28,000 shortfall, or accepts a slightly lower gearing and renegotiates the purchase price.
The trap on UK commercial mortgages is treating LTV as if it ratchets up to a single ceiling. It does not. LTV is the headline, but the cover ratio (DSCR or ICR) is almost always the binding constraint on small to mid-ticket deals.
LTV versus LTC
LTV measures debt against value. LTC measures debt against cost. They are different metrics for different products. LTV is for completed, income-producing or owner-occupied property. LTC is for development and refurbishment. See LTC for the development side.