LTV, LTGDV, LTC and LTPP explained

Four ratios, one question

Every bridging and development lender sets a limit on how much it will lend against a case. Those limits are expressed as ratios. Most cases are tested against more than one, and the lender applies whichever gives the lowest loan. Knowing which one will bite saves you sending a case that was never going to fit.

LTV: loan to value

The standard test for bridging. It compares the loan with what the property is worth today, based on the lender's valuation.

• Gross or net? Most bridging lenders set their maximum LTV on the gross loan, which includes the arrangement fee and any retained interest. A client who needs £325,000 in hand can end up with a gross loan of around £370,000 once a year's interest and fees are added.
• Which valuation? Lenders lend against open market value (OMV), a 180-day value or a 90-day value. The 180-day and 90-day figures assume a quicker sale, so they are lower, and so is the loan. For maximum leverage, look for a lender using OMV. Watch: OMV, 180-day or 90-day valuation (0:16)

Example: a £370,000 gross loan on a property valued at £500,000 is 74% LTV.

LTGDV: loan to gross development value

Used for development and heavy refurbishment, where the value at the end matters more than the value today. GDV is the valuer's figure for the completed scheme, usually the total sale value of the units.

Example: a £1.2m facility on a scheme with a GDV of £2m is 60% LTGDV.

LTC: loan to cost

Total cost is usually the purchase price plus build costs, and sometimes fees and contingency. It tells the lender how much of the project the borrower is funding. Many development lenders cap both LTGDV and LTC, so a strong GDV will not help if the borrower has too little of their own money in.

Example: land at £600,000 plus build costs of £900,000 is £1.5m. A £1.2m facility is 80% LTC.

LTPP: loan to purchase price

Some lenders cap the loan at the lower of LTV and LTPP. It matters most when a property is bought below its market value, for example at auction. The valuation may say £500,000, but if the purchase price is £400,000, a 75% LTPP cap limits the loan to £300,000.

Which one bites?

• Straight bridge on a standing property: LTV, on the lender's valuation basis.
• Below-market or auction purchase: LTPP is often the limit.
• Refurbishment: LTV on day one, and often LTGDV for the works.
• Ground-up development: LTGDV and LTC together. The lower result wins.

Lenders also adjust these limits for the details of the case. Whether the property is let or vacant, the works planned and the borrower's credit history can all move the leverage. Watch: How one detail changes the terms (1:12)

Figures are illustrative. Each lender sets its own maximum LTV, LTGDV, LTC and LTPP, and these change over time. Terms for any case depend on the lender's underwriting and valuation.