Development Finance Explained: GDV, LTC and LTGDV

Development finance funds the land purchase and the build cost of a scheme, from ground-up construction to a heavy refurbishment that goes well beyond cosmetic works. It is short-term and interest-only in practice, structured around a defined build programme and a clear exit. What makes it different from a straight mortgage or a simple bridge is that a lender is underwriting a project that does not fully exist yet, so it sizes the facility against three ratios at once and releases the money in stages rather than as a single lump sum. We are a broker, so we place these cases with the lenders whose appetite fits your scheme; the lender sets the rate, the leverage and the conditions, and the lender decides whether to fund at all.

The first ratio is loan to cost (LTC), the proportion of total project cost the lender will fund. Total cost usually means land plus build plus associated fees and finance costs. Many senior development lenders sit around 65% to 75% LTC on an illustrative basis, meaning you are expected to put in the balance as genuine cash equity. The second is loan to gross development value (LTGDV), the loan measured against the finished, sold-out value of the scheme (GDV). This is often capped around 60% to 70% GDV illustratively, and it acts as the ceiling. Whichever of LTC and LTGDV bites first is the one that governs the maximum loan.

The third figure is the day-one loan to value against the land. On day one there is no finished building to lend against, only the site, so the initial advance is set against the current site value, commonly in the region of 50% to 65% LTV illustratively. This is why land-heavy schemes with modest build costs can feel under-funded on day one even when the GDV looks strong; the day-one number is constrained by the land, not the promise. All of these ranges are indicative only. Real numbers depend on the scheme, the location, your track record and the lender, and pricing sits entirely with the lender.

The money is released in two parts. The land tranche is usually advanced up front to help you acquire or refinance the site. The build tranche is drawn down in stages against the works, typically released in arrears after a monitoring surveyor (often an independent quantity surveyor acting for the lender) confirms that a given stage has actually been built. Drawing in arrears protects the lender, but it means you fund the next phase of works first and get reimbursed after sign-off, so your cash flow and your build programme need to line up. Interest is normally rolled up, meaning it is not paid monthly but accrues and is added to the balance, then cleared at the end. Rolling interest keeps monthly outgoings off a site that is not yet producing income, but it does eat into your headroom, because rolled interest counts toward the loan against those same LTC and LTGDV caps.

The exit is what a development lender scrutinises hardest, because the whole facility is designed to be repaid in a single event at the end of the term. The two standard routes are selling the finished units or refinancing onto a longer-term product, such as a term mortgage or a development-exit bridge if sales are slower than planned. A credible exit means the numbers stack at a realistic sale price, the term is long enough for the build plus a sensible sales period, and there is a fallback if the market softens. Vague exits, over-optimistic GDVs and programmes with no contingency are what get schemes declined or repriced, whatever the headline ratios say.

Here is a worked illustrative scheme. Suppose the land costs £400,000, the build costs £600,000, so total cost is £1,000,000, and the finished GDV is £1,600,000. At 70% LTC the loan is capped at £700,000. At 65% LTGDV the loan is capped at £1,040,000. LTC bites first here, so the facility is around £700,000 and you fund roughly £300,000 of cost as equity, before fees and rolled interest are added in. The day-one land advance might be around 55% of the £400,000 site, so about £220,000 released up front, with the remaining roughly £480,000 drawn against build stages. These figures are purely to show the mechanics; they are not a quote and not an offer, and a lender may size your scheme very differently.

No broker can promise you a rate, a leverage level or an approval before a lender has assessed your scheme, and anyone who does is guessing. What we do is tell you quickly which lenders are genuinely open to your site type, your GDV and your experience, then get the right one instructed with a package that survives the monitoring surveyor's review.