LTV measures loan against value. Loan to Cost measures loan against total project cost. They sound similar but they serve different purposes.
LTC is the main metric for development finance. It compares the loan amount to the total cost of acquiring and developing a project. If your total project cost is £500,000 and the lender offers £400,000, your LTC is 80%.
Development lenders typically cap LTC at 70% to 80%. The remaining 20% to 30% must come from your own cash or equity. That means a £500,000 project requires £100,000 to £150,000 of your own money.
The difference between LTV and LTC matters because development projects often have a GDV that is higher than the total cost. A development with £500,000 in costs and a £650,000 GDV has an LTV of 62% on an 80% LTC loan. Both numbers matter to the lender.
If you are developing on the South Coast, where build costs are high, LTC is often the binding constraint. A tight LTC means you need more equity upfront. That is why developers look for projects where the GDV is significantly higher than the total cost.
The formula
LTC (%) = (Loan Amount / Total Project Cost) × 100
Why this matters
LTC is the main constraint in development finance. Know your maximum LTC before you start looking for a lender. If the number is below 70%, you will need significant equity.
Running these calculations before you buy is the difference between a good investment and an expensive lesson. Xelox Properties can help you evaluate any deal.