Loan to cost vs loan to GDV

Loan to cost and loan to GDV are the two ratios that decide how much a lender will advance against a development scheme, and they answer different questions. Loan to cost measures the facility against everything it takes to deliver the project, while loan to GDV measures it against what the finished building will be worth. We arrange development finance for logistics and industrial schemes, and as an introducer rather than a lender we model both ratios before we approach the market so you know your equity gap before any terms come back.

This guide sets out what each ratio means, works through the figures on a real-feeling warehouse scheme, and explains why a lender always lends to whichever test produces the lower number. We also cover the GDV itself, how the two ratios sit alongside loan to value on a finished asset, and what a sensible loan to GDV looks like in the current market. The aim is that you can read a development finance offer and understand exactly why the facility is the size it is, and where your own money has to fill the gap.

What is loan to cost in development finance?

Loan to cost is the size of a development loan expressed as a percentage of the total cost of delivering the scheme. That total cost is not just the build. It includes the land or site purchase, the construction budget, the professional fees for architects, engineers and the monitoring surveyor, and usually a contingency. A lender funding seventy percent loan to cost on a scheme costing five million pounds will advance three and a half million pounds, and expect the developer to contribute the remaining one and a half million pounds, weighted towards the land at the start.

The reason loan to cost matters is that it sets your day-one equity requirement. The cash you put in is the gap between the facility and the total project cost, so the lower the loan to cost a lender is willing to offer, the more of your own money goes in before a single brick is laid. For ground-up logistics schemes most lenders sit between sixty-five and seventy-five percent loan to cost, with the experienced developer and the strong scheme reaching the top of that band.

Loan to cost is a cost-side discipline. It stops a developer borrowing more than the project genuinely needs and keeps the borrower with real skin in the game, which is exactly what a lender wants when it is funding an unfinished, unsold asset rather than a settled income stream.

What is loan to GDV, and what is the GDV of a development?

Loan to GDV is the size of the same development loan expressed as a percentage of the gross development value, which is the figure the finished, completed scheme is expected to be worth. The GDV of a property development is the open-market value of the asset once it is built and ready to let or sell, as assessed by the lender's valuer. For a logistics scheme the GDV is usually derived from the rent the building is expected to command and the yield an investor would pay for that income.

Loan to GDV is a value-side discipline. It protects the lender against a build that costs more than the finished asset is worth, and against a developer who has overpaid for land. Most lenders cap a development loan at around sixty to sixty-five percent loan to GDV, regardless of how the costs stack up. On a scheme with a GDV of five million six hundred thousand pounds, a sixty-two percent loan to GDV ceiling allows a facility of roughly three and a half million pounds.

Because the GDV rests on a valuation, it is the more fragile of the two ratios. A cautious valuation, a softening of the rent assumption or an outward shift in yields all pull the GDV down and shrink the facility, even when your costs have not moved at all. We stress-test the GDV with the borrower before we present a scheme, because a facility built on an optimistic end value is the one most likely to be cut when the valuer reports.

How does a lender combine loan to cost and loan to GDV?

A lender applies both tests and lends to whichever produces the lower figure. This is the single most important point about the two ratios. Take a logistics unit with a total cost of five million pounds and a GDV of five million six hundred thousand pounds. At seventy percent loan to cost the facility would be three million five hundred thousand pounds. At sixty-two percent loan to GDV the facility would be three million four hundred and seventy-two thousand pounds. The lender advances the lower of the two, so the GDV test binds and the facility is capped at roughly three million four hundred and seventy thousand pounds.

The pattern tells you where your equity goes. A scheme with a fat margin between cost and end value will be limited by loan to cost, so your equity requirement is modest and predictable. A scheme with a thin margin between what it costs to build and what it sells for will hit the loan to GDV ceiling first, and you will need to put in more of your own money to bridge the gap. Either way the day-one deposit is the difference between the facility and the cost you have to fund before the first drawdown.

We run both calculations across several lenders before approaching the market, because the percentages move from one lender to the next. A lender that is generous on loan to cost but tight on loan to GDV will produce a different facility from one that prices the other way around, and on a marginal scheme that difference decides whether the deal is fundable at all.

How does loan to GDV relate to loan to value on a finished building?

Loan to value, or LTV, measures a loan against the current value of an existing, finished property. Loan to GDV measures a development loan against the future value of a building that does not yet exist. They share the same arithmetic but describe different moments in a property's life. When a logistics scheme reaches practical completion, the development finance is repaid and the asset is refinanced onto a longer term loan or an investment facility priced on loan to value against the now-real building.

This is why the two ratios feel familiar yet behave differently. A finished warehouse let to a strong tenant might support a term loan at seventy percent loan to value, because the income is real and the building exists. The same asset mid-build supports a development facility at a lower loan to GDV, because the lender is funding a forecast rather than a fact. The step down from the development phase to the investment phase is exactly the refinance that repays the development loan.

Whether forty percent loan to value is good depends on what you are trying to do. A forty percent loan to value on a finished investment property is conservative and cheap, leaving plenty of equity in the asset and giving the lender a wide safety margin. On a development scheme you are unlikely to see a number that low, because development finance is structured to fund the larger share of the cost and the lower share of the end value, which is what the loan to cost and loan to GDV ceilings together produce.

What are the main types of development loan?

There are three broad types of loan a developer draws on, and they map onto the stages of a scheme. The first is senior development finance, the main facility that funds the bulk of the build against loan to cost and loan to GDV. The second is mezzanine finance, a smaller top-up that sits behind the senior loan and stretches the total borrowing higher up the cost stack, at a higher rate, when a developer wants to commit less of their own equity. The third is development exit finance, a bridging facility taken once the scheme is built to repay the development loan and buy time to sell or let.

For a logistics scheme the senior facility does most of the work, and the choice is usually whether to add mezzanine to reduce the day-one equity. Mezzanine raises the blended cost of finance, so we model whether the extra leverage genuinely improves the developer's return or simply feeds margin to a second lender. On a strong scheme it can be worth it. On a thin one it rarely is.

Underpinning all three is the same market backdrop. UK logistics development completions reached around sixteen million square feet in 2025, the lowest figure since 2018 according to Knight Frank, so lenders are funding into a market with constrained new supply. A constrained pipeline tends to support rents and end values, which is the GDV side of the equation that determines how large a facility a lender will write.