Loan to GDV and loan to cost explained
Loan to GDV and loan to cost are the two leverage tests that decide how much a build-to-rent scheme can borrow. This guide explains what each measures and why lenders use the lower of the two.
Loan to GDV (LTGDV) measures the development loan against the gross development value of the finished scheme, while loan to cost (LTC) measures it against the total development cost. Lenders apply both and cap the loan at the lower of the two, so a developer needs to know which one binds. Senior build-to-rent development debt commonly reaches around 60 to 65% loan to cost or about 70 to 75% loan to GDV, whichever is lower, with mezzanine or equity stretching total leverage to around 80 to 90% loan to cost at a higher cost. We arrange and introduce the finance and are not a lender; all figures are indicative.
At a glance
- Loan to GDVDebt against the finished, let value (GDV)
- Loan to costDebt against total development cost
- Lender caps onThe lower of the two
- Senior loan to costAround 60 to 65%
- Senior loan to GDVAround 70 to 75%
- With mezzanine or equityUp to about 80 to 90% loan to cost
Loan to GDV and loan to cost explained
Loan to GDV and loan to cost are the two yardsticks a development lender uses to decide how much it will advance against a build-to-rent scheme. They measure the same loan against two different denominators: what the finished scheme is worth, and what it costs to build. Because they answer different questions about risk, a lender applies both and lends the lower of the two figures. Understanding which one binds on a given scheme is the key to knowing how much equity a developer needs to find.
The two tests guard against two different dangers. Loan to GDV protects the lender against an over-optimistic value: if the developer assumes a keen yield and a high finished value, capping the loan against that value limits the damage if the value disappoints. Loan to cost protects against a thin equity cushion: it ensures the developer has real money committed to the project, so it shares the pain if costs overrun. A lender wants both protections, which is why it takes the lower.
What loan to GDV measures
Gross development value, or GDV, is what the finished, stabilised build-to-rent scheme is worth: its net operating income capitalised at the exit yield. Loan to GDV expresses the development loan as a percentage of that value. Senior build-to-rent development debt commonly reaches around 70 to 75% loan to GDV. The headroom between the loan and the value is the lender's cushion: if the scheme has to be sold, the value must cover the debt with margin to spare.
Because GDV depends on the exit yield and the net operating income, the loan to GDV test is only as sound as those assumptions. An over-optimistic yield inflates the GDV and flatters the loan to GDV, so a careful lender stress-tests the value against published prime evidence for the segment, such as the 3.90 to 4.75% range for prime multifamily on Knight Frank's September 2025 basis. We make sure the GDV in a case rests on defensible yield and income assumptions, because an inflated value does not survive an underwriter's scrutiny.
What loan to cost measures
Total development cost is everything the scheme costs to deliver: land, build cost, professional fees, finance costs and contingency. Loan to cost expresses the development loan as a percentage of that total. Senior build-to-rent development debt commonly reaches around 60 to 65% loan to cost, which means the developer funds roughly 35 to 40% of the cost as equity. That equity is the lender's assurance that the developer has real skin in the game and will not walk away if the project gets harder.
On a high-value scheme in a keen market, the GDV is large relative to cost, so the loan to cost cap usually binds first and limits the loan. On a tighter-margin scheme, where cost is high relative to value, the loan to GDV cap can bite first. A developer should model both before assuming how much it can raise, because the lower number is the one that counts.
How the two tests work together
In practice a lender runs both calculations and offers the lower result. Take a scheme costing £40m to build with a GDV of £50m. At 65% loan to cost the loan would be £26m; at 75% loan to GDV it would be £37.5m. The lender lends the lower, £26m, so loan to cost binds and the developer funds £14m of equity. Change the numbers so the GDV is only £34m and the picture flips: 75% loan to GDV gives £25.5m against £26m on cost, so loan to GDV binds. The same scheme, two different limiting tests.
| Test | Measures debt against | Typical senior cap | Guards against |
|---|---|---|---|
| Loan to cost (LTC) | Total development cost | Around 60 to 65% | Thin equity, cost overruns |
| Loan to GDV (LTGDV) | Finished value (GDV) | Around 70 to 75% | Over-optimistic value |
| Lender lends | The lower of the two | Whichever binds | Both risks |
This is why a developer cannot rely on a single headline leverage figure. The amount that can actually be raised is the lower of the two tests, and which one bites depends on the relationship between cost and value on that specific scheme. We model both for every case so a developer knows the real equity requirement before going to market.
Stretching leverage with mezzanine and equity
Where senior debt alone does not provide enough leverage, a developer can add a junior layer. Mezzanine finance sits behind the senior lender, stretches total leverage to around 80 to 90% loan to cost and carries a higher coupon to reflect the subordinated risk. Equity, whether the developer's own or a co-investor's, fills any remaining gap. The trade-off is cost: the blended rate across senior and mezzanine is higher than the senior rate alone, so the extra leverage has to earn its place.
We model the whole capital stack together, senior, mezzanine and equity, because the headline senior loan to cost tells only part of the story once a junior tranche is added. The right structure balances the leverage a developer wants against the cost it is willing to bear and the cover a lender requires. All figures here are indicative ranges and never an offer of credit. We arrange and introduce the finance and do not lend.
Loan to GDV and loan to cost explained: common questions
What is the difference between loan to GDV and loan to cost?
Loan to GDV measures the loan against the finished value of the scheme; loan to cost measures it against the total development cost. Loan to GDV guards against an over-optimistic value, loan to cost guards against a thin equity cushion. Lenders apply both and lend the lower of the two.
Why do lenders use the lower of loan to cost and loan to GDV?
Because the two tests guard against different risks and a lender wants both protections. Taking the lower of the two ensures the developer has real equity committed and that the loan is not over-extended against an optimistic value. Which test binds depends on the relationship between cost and value on the scheme.
What is a typical loan to cost for build to rent development finance?
Senior build-to-rent development debt commonly reaches around 60 to 65% loan to cost, so the developer funds roughly 35 to 40% as equity. Mezzanine finance or equity can stretch total leverage to around 80 to 90% loan to cost at a higher blended cost. Figures are indicative and vary by scheme.
What is a typical loan to GDV for build to rent?
Senior development debt commonly reaches around 70 to 75% loan to GDV, the value of the finished, let scheme. The headroom between the loan and the value is the lender's cushion. The loan to GDV is only as sound as the yield and income assumptions behind the GDV, which lenders stress-test.
How does mezzanine finance increase leverage?
Mezzanine finance sits behind the senior lender in the capital stack and stretches total leverage to around 80 to 90% loan to cost. It carries a higher coupon to reflect the subordinated risk, so the blended cost across senior and mezzanine is higher than the senior rate alone. It reduces the equity a developer must find.
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