The Loan to Cost Ratio (LTC) is the loan measured against what the project costs to deliver, and it is the number that decides how big a cheque you write to get the deal funded. At a 75 per cent Loan to Cost Ratio (LTC), a lender covers 75 per cent of your total cost and you find the other 25 per cent in equity. Its better-known twin, the Loan to Value Ratio (LVR), measures the same loan against what the project will be worth. A development lender almost always runs both, then lends to whichever produces the smaller facility, so understanding the Loan to Cost Ratio (LTC) is half of understanding how much a lender will actually advance.
This guide is written for the developer sizing a facility and working out the equity gap behind it. It covers what the Loan to Cost Ratio (LTC) is and how it sets your equity, how it differs from the Loan to Value Ratio (LVR) and which one binds, exactly what counts as “cost” in the denominator, what ratios Australian lenders currently accept, how your equity contribution follows from the ratio, a worked example sizing both ratios on one deal, what happens to the Loan to Cost Ratio (LTC) when costs blow out, how pre-sales and the rest of the capital stack interact with it, how the cost base shifts by state, and how New Zealand differs. Every benchmark is indicative, because lending appetite, valuations and rates move with the cycle and with the specific deal.
What is the Loan to Cost Ratio (LTC) in property development?
The Loan to Cost Ratio (LTC) is the debt facility expressed as a percentage of the project’s Total Development Cost (TDC), and the lender sets a maximum it is willing to fund. The formula is plain: the Loan to Cost Ratio (LTC) equals the loan amount divided by total project cost, multiplied by 100. If a lender will go to 70 per cent of a $7,200,000 cost, the facility caps at $5,040,000 and you fund the remaining $2,160,000 yourself.
What makes the ratio useful to a developer is that it speaks in the currency you actually care about, which is the equity cheque. The Loan to Cost Ratio (LTC) and your equity are two sides of one number: the loan covers its percentage of cost, and you cover the rest. A 75 per cent Loan to Cost Ratio (LTC) means 25 per cent equity, so a $2,000,000 project needs $500,000 of developer capital. Move the ratio to 80 per cent and the same project needs $400,000. That is why the Loan to Cost Ratio (LTC) tends to be the first number a developer should solve for: it tells you how much cash the deal demands before the lender will commit a dollar.
The Loan to Cost Ratio (LTC) is sometimes called the loan to cost ratio in full, or the loan-to-cost ratio with hyphens, and in commercial lending more broadly it sits next to the United States term loan-to-cost. The mechanics are the same: loan over cost. Where a development deal gets more involved is that “cost” is a built-up budget rather than a single figure, and the lender applies the ratio to its own assessment of that budget, not yours. The next sections pull apart both halves: how the Loan to Cost Ratio (LTC) sits against the Loan to Value Ratio (LVR), and what actually goes into the cost it is measured against.
Loan to Cost Ratio (LTC) versus Loan to Value Ratio (LVR): which one binds?
The difference is the denominator: the Loan to Cost Ratio (LTC) measures the loan against what the project costs, while the Loan to Value Ratio (LVR) measures the same loan against what the project is worth. As lenders put it, the Loan to Cost Ratio (LTC) compares the loan to total project cost and the Loan to Value Ratio (LVR) compares it to the project’s value, usually its Gross Realisation Value (GRV): one measures cost coverage, the other value coverage. They are not alternatives a developer picks between. A development lender almost always applies both caps and lends to whichever produces the smaller facility, because it wants the loan to sit safely under its cost limit and its value limit at the same time.
Which one binds depends on the deal’s margin, and this is the part worth getting right. The value cap (against Gross Realisation Value (GRV)) sets the ceiling, the cost cap (against Total Development Cost (TDC)) sets the floor, and the development margin between value and cost decides which one bites first. On a fat-margin project, where the end value sits well above the cost, the value cap is generous and the cost cap usually binds. On a thin-margin project, where value and cost sit close together, the value cap can drop below the cost cap and become the binding constraint, leaving you to fund more of the deal. Non-bank lenders lean on exactly this relationship: where a project carries a high development margin, the lender can fund a larger share of cost with debt without breaching its value cap, because the headroom under the Loan to Value Ratio (LVR) is wide.
For a developer the takeaway is to model both ratios and watch the lower one, because that is the number the facility is actually sized to. A facility platform such as Feasly returns the Loan to Cost Ratio (LTC) and the Loan to Value Ratio (LVR) together and treats them as binding constraints, sizing the facility to whichever caps first, so the gearing you negotiate to is the gearing the model is built on. Quoting one ratio without the other, or either ratio without naming its basis, leaves out the test that might be the one doing the work.
What counts as “cost” in the Loan to Cost Ratio (LTC)?
The “cost” in the Loan to Cost Ratio (LTC) is the project’s full Total Development Cost (TDC), not just the build contract, and getting the budget complete matters because every dollar you leave out understates the equity the lender will ask for. A development budget for ratio purposes generally includes land acquisition, professional and consultant fees (the “soft costs”), civil and construction costs, council levies and developer contributions, finance costs (interest and lender fees), and a contingency. As one development lender sums it up, the budget should encompass all costs required to take the project to completion, and sales or marketing commission is about the only line that can be excluded, because it is incurred after the project is finished.
Two inclusions catch developers out, and both raise the denominator. The first is capitalised interest. On most development facilities the interest is not paid monthly but reserved inside the facility and added to what you owe, and lenders expect that capitalised interest to sit inside the cost the ratio is measured against. As the same lenders note, total project cost should include capitalised interest, professional fees and contingency, because the lender wants the full picture when calculating the Loan to Cost Ratio (LTC). The second is contingency: a genuine reserve for cost overruns is part of the budget, not an optional extra, and on higher-geared deals lenders often insist the contingency be larger before they will fund.
The reason the composition matters is that the Loan to Cost Ratio (LTC) is only as honest as the budget underneath it. A lender does not take your number on trust; it assesses the budget, often through a quantity surveyor, and applies its ratio to its own figure. A thin or optimistic budget produces a flattering Loan to Cost Ratio (LTC) that collapses the moment the real cost shows up, because the loan was sized to a denominator that was too small. Building the cost base properly, with every line in and a realistic contingency, is what makes the ratio mean something. It is also why the Total Development Cost (TDC) is worth modelling carefully in its own right before you ever quote a Loan to Cost Ratio (LTC).
What Loan to Cost Ratio (LTC) will Australian lenders actually accept?
Australian development lenders generally work to something like 65 to 80 per cent of Total Development Cost (TDC) on senior debt, with the figure depending heavily on the lender type, the project, and the strength of the budget. As a rough guide drawn from current market practice, and every figure here should be treated as indicative rather than a quote:
- Major banks tend to sit at the conservative end, often around 70 per cent of Total Development Cost (TDC), and sometimes 60 to 70 per cent, paired with the strongest pre-sale and serviceability requirements.
- Non-bank and specialist lenders generally go higher, often around 75 to 80 per cent of Total Development Cost (TDC), accepting more risk for a higher rate and asking for less equity.
- With mezzanine finance layered behind the senior debt, the combined Loan to Cost Ratio (LTC) can reach 85 to 90 per cent of total project cost, and funding above 90 per cent generally only happens in joint venture (JV) structures where the lender takes a share of the profit instead of more interest.
Behind the bank conservatism sits the prudential framework. Lending for land acquisition, development and construction (ADC) is treated as a distinct, higher-risk category under the Australian Prudential Regulation Authority (APRA)‘s Prudential Standard APS 220 Credit Risk Management, which requires an authorised deposit-taking institution (ADI) to maintain prudent credit policies and sound assessment criteria for exactly this kind of lending, and lets the Australian Prudential Regulation Authority (APRA) set limits on particular types of lending where it sees risk building. That constraint is part of why bank ratios sit lower and why developers chasing a higher Loan to Cost Ratio (LTC) often end up with a non-bank or a layered structure.
The cost of that higher gearing moves with rates. Because development interest is capitalised into the cost base, the prevailing Reserve Bank of Australia (RBA) cash rate feeds straight into the very denominator the Loan to Cost Ratio (LTC) is measured against, and a non-bank or mezzanine rate stacked on top widens the gap between a bank’s gearing and a private lender’s. Pushing the ratio higher is a real cost decision, not a free lift.
How does your equity contribution follow from the Loan to Cost Ratio (LTC)?
Your equity is the mirror image of the Loan to Cost Ratio (LTC): whatever percentage of cost the lender will not fund, you fund. At a 70 per cent Loan to Cost Ratio (LTC) you bring 30 per cent of the Total Development Cost (TDC); at 80 per cent you bring 20 per cent. This is why the ratio is the first thing to solve when you are working out whether you can even afford to start a project, because it converts directly into the cash and security you need at the table.
That equity does not have to be cash. A developer’s contribution can be cash toward the land or soft costs, or it can be equity already held in the site. If you already own the land, the equity sitting in it counts toward your share, which can mean little or no further cash is required to hit the lender’s minimum. Two related points are worth carrying into the model. Where the land has risen in value since you bought it, that uplift can lift your effective equity, although some lenders discount an unrealised valuation gain because it is not a cash contribution. And where you have already paid for planning consents and design before approaching the lender, those costs can count as equity already in the project, which reduces the further cash you have to inject and removes the consenting risk a lender would otherwise price for.
Lenders set a minimum equity contribution for a reason beyond their own buffer, and it is worth understanding because it shapes how they read your deal. Equity is “skin in the game”: a developer with real capital at risk has an incentive to deliver, while a developer with nothing to lose may take risks that compromise the project. A higher Loan to Cost Ratio (LTC), which means less of your own money in the deal, reads as higher risk to the lender, which is why it comes with a higher rate and tighter conditions. The equity requirement is not an obstacle the lender invents; it is the thing that aligns your interests with theirs.
A worked example: sizing the facility from the Loan to Cost Ratio (LTC) and the Loan to Value Ratio (LVR)
Take a small project and run both ratios to see how they interact and which one sizes the loan. All figures are indicative and rounded. Assume an eight-apartment project with a Total Development Cost (TDC) of $7,200,000, a Gross Realisation Value (GRV) of $9,600,000 inclusive of the Goods and Services Tax (GST), and a Net Realisable Value (NRV) of about $8,300,000 after selling costs. On those numbers the project profit is on the order of $1,100,000, a development margin on cost near 15 per cent.
Now apply two common caps. A lender offering 70 per cent of the Total Development Cost (TDC) would size to $5,040,000. The same lender applying 65 per cent of the Gross Realisation Value (GRV) inclusive of the Goods and Services Tax (GST) would size to $6,240,000. It lends to the lower of the two, so the facility is $5,040,000, the cost cap binds, and you fund the remaining $2,160,000, which is 30 per cent of the Total Development Cost (TDC), in equity.
Here is the part that catches people out. That single $5,040,000 facility can be described several ways at once, all true:
| Basis | Value or cost | Facility / basis | Reads as |
|---|---|---|---|
| Total Development Cost (TDC) | $7,200,000 | $5,040,000 | 70% (Loan to Cost Ratio (LTC)) |
| Gross Realisation Value (GRV), inc Goods and Services Tax (GST) | $9,600,000 | $5,040,000 | 53% (Loan to Value Ratio (LVR)) |
| Net Realisable Value (NRV), ex Goods and Services Tax (GST) | $8,300,000 | $5,040,000 | 61% (Loan to Value Ratio (LVR)) |
The same loan is a 70 per cent Loan to Cost Ratio (LTC), a 53 per cent Loan to Value Ratio (LVR) against the gross value, and a 61 per cent ratio against the net value. Because the cost is the smallest of the three denominators, the Loan to Cost Ratio (LTC) reads as the highest ratio, which is exactly why it was the cap that bit. A developer told “we can do 53 per cent” and one told “we can only do 70 per cent” might be hearing about the identical facility, and the lender that quotes the cost ratio is quoting the one that actually constrained the loan.
Change the margin and the binding cap can flip. If the same $7,200,000 cost carried a Gross Realisation Value (GRV) of only $7,400,000 inclusive of the Goods and Services Tax (GST), a thin deal, then 65 per cent of value would be $4,810,000, below the $5,040,000 cost cap. Now the value cap binds, the facility shrinks, and you fund $2,390,000 rather than $2,160,000. The lesson is the one from the previous section: model both, because the margin decides which test you are actually up against, and a thinner deal asks for more equity even when the cost has not moved.
What happens to the Loan to Cost Ratio (LTC) if costs blow out?
If costs blow out, the facility usually does not grow to match, so the overrun comes out of your equity, and this is the single most important thing to understand about the Loan to Cost Ratio (LTC). The loan was sized to the budget at approval. When the real cost lands higher, the lender does not automatically lend more; the extra cost lifts the denominator, which means your actual Loan to Cost Ratio (LTC) was lower than you thought and the gap is yours to fund. As one lender puts it plainly, unexpected expenses can require the borrower to inject more equity or renegotiate terms. A cost overrun on a development is rarely the lender’s problem first; it is the developer’s.
This is why lenders treat the cost base as something to stress, not accept. On higher-geared deals especially, expect the lender to stress-test the development budget and insist on increased contingencies before funding, and to hold back a cost-to-complete buffer to make sure the facility can actually finish the build. The thinner your contingency, the more of any overrun you wear directly, so a realistic contingency is not padding; it is the line that protects your equity from a budget that drifts.
And budgets do drift. The Cordell Construction Cost Index (CCCI), which tracks the cost of residential building work in Australia, has kept rising quarter on quarter even as annual growth eased toward multi-year lows, and the sector continues to flag labour shortages and supply volatility as live risks into 2026. For a developer that means the cost denominator behind your Loan to Cost Ratio (LTC) is a moving figure, not a fixed one, and a build that runs long enough to catch a cost cycle can erode the ratio you started with. Carrying the contingency the lender wants, and pressure-testing the budget against a cost rise before you sign, is what keeps a blowout from turning into an equity call you did not plan for. Modelling the cost base and the peak funding exposure together is the discipline that surfaces this early.
How do pre-sales and the rest of the capital stack interact with the Loan to Cost Ratio (LTC)?
The Loan to Cost Ratio (LTC) cap is one of several tests a development facility has to pass, and pre-sales and subordinated capital are the levers that work alongside it. The cost cap and the value cap set the senior facility’s size; qualifying pre-sales then determine whether a bank will release it. Since the global financial crisis, major banks have generally wanted qualifying pre-sales to cover something like 100 to 120 per cent of the construction debt, roughly double the pre-crisis norm, with a pre-sale only counting if it is genuine: an arm’s length, unconditional contract with a substantial non-refundable deposit and a sunset date that sits comfortably beyond expected completion. Soft or related-party contracts do not qualify. Private and non-bank senior lenders may fund with few or no pre-sales, but they price that risk into the rate.
Where the senior Loan to Cost Ratio (LTC) leaves a gap, the rest of the capital stack fills it. Mezzanine finance or preferred equity can sit behind the senior facility and cover the slice between the senior cost cap and the total funding need, lifting the combined Loan to Cost Ratio (LTC) toward 85 to 90 per cent without breaching the senior lender’s limit. That subordinated capital is dearer than senior debt, so it is a tool for the top of the stack rather than the base, and the more of the cost you fund with it, the thinner your profit after finance. A development finance broker earns their fee here, in matching the deal to a lender whose Loan to Cost Ratio (LTC), pre-sale settings and appetite actually fund it, because a project that fails one bank’s cost cap and pre-sale test can clear another lender’s comfortably.
The practical sequence for a developer is to size the senior facility to the lower of the cost and value caps, check it against the pre-sale requirement, and then decide whether to fill any remaining gap with more equity or with subordinated capital at its higher cost. Each path changes the return, so the choice is a feasibility question, not just a funding one.
Does the Loan to Cost Ratio (LTC) vary by state or territory?
The mechanics of the Loan to Cost Ratio (LTC) do not change from state to state, but the cost base it is measured against does, so the same headline ratio can demand more equity in one jurisdiction than another. The ratio is always the loan over the Total Development Cost (TDC). What moves between New South Wales (NSW), Victoria (VIC), Queensland (QLD), South Australia (SA), Western Australia (WA), Tasmania (TAS), the Australian Capital Territory (ACT) and the Northern Territory (NT) is what goes into that cost.
Three cost lines drive most of the variation. Construction costs differ by location and trade availability, so the build component of the budget is not the same dollar figure everywhere. Transfer duty (stamp duty) on the land acquisition is a state tax that can be a sizeable early cost line, and it varies by state and by property value; in New South Wales (NSW), for instance, transfer duty is charged on a sliding scale, and the equivalent duty differs in every other state and territory. Infrastructure and developer contributions are the third: a project may carry council or state contributions (for example local contributions under New South Wales (NSW) planning law, or Victoria’s Growth Areas Infrastructure Contribution) that load the cost base before a brick is laid. Because all three sit inside the denominator, a higher-cost jurisdiction produces a larger Total Development Cost (TDC) for the same building, and at a fixed Loan to Cost Ratio (LTC) that means a larger equity cheque. The ratio travels unchanged; the cost it bites on does not.
How does the Loan to Cost Ratio (LTC) work in New Zealand?
New Zealand development lenders use the same Loan to Cost Ratio (LTC) logic as Australian lenders, with banks conservative and non-banks higher and dearer, but the cost base is built on different rules. As one New Zealand lender describes its own benchmark, most banks fund up to 70 per cent of Total Development Cost (TDC), with non-banks up to around 90 per cent, and funding above that generally only works in a joint venture (JV) where the lender shares in the profit. The familiar 80:20 split, where the developer funds 20 per cent of the Total Development Cost (TDC) and the lender funds 80 per cent, is a common starting reference across the Tasman just as it is in Australia.
Two local differences change the “C” in the ratio. New Zealand has no stamp duty or transfer duty on land, unlike Australia, so the Total Development Cost (TDC) carries no duty line and the early cost base is lighter for an otherwise identical deal, which leaves more of the early funding available for the land itself. And the Goods and Services Tax (GST) runs on different rules, at 15 per cent with its own treatment of property and no margin scheme equivalent, so where the Goods and Services Tax (GST) sits inside cost and value should be built on the New Zealand basis rather than carried across from an Australian model. The logic of the Loan to Cost Ratio (LTC) is identical; the budget it measures is assembled differently.
How can a developer improve their Loan to Cost Ratio (LTC) outcome?
The most reliable way to lift the Loan to Cost Ratio (LTC) a lender will offer is to reduce the risk it is pricing, because the ratio is a risk dial rather than a fixed rule. The levers that tend to move it, all of them dependent on the specific lender and deal:
- Strengthen the deal’s margin. Because a lender can fund more of the cost when the value sits well above it, anything that genuinely lifts the development margin, a higher end value or a trimmer cost, widens the headroom under the value cap and can let the cost cap run higher.
- Bring genuine, qualifying pre-sales. Contracted arm’s length pre-sales give the lender a clearer path to repayment and can support a higher facility, as well as clearing the separate pre-sale cover test. Soft or related-party contracts do not count.
- Present a credible, stress-tested budget. A well-built cost plan with a realistic contingency, ideally supported by a quantity surveyor and a fixed-price build contract with a reputable builder, reduces the cost-overrun risk the lender is guarding against and supports a higher Loan to Cost Ratio (LTC) on a denominator the lender trusts.
- Count the equity you already hold. Land equity, a genuine valuation uplift, and consents already paid for can all count toward your contribution, reducing the further cash you need to reach the lender’s minimum.
- Match the lender to the deal. If a bank’s cost cap leaves too large an equity gap, a non-bank or a layered structure with mezzanine finance may fund the same project at a higher combined Loan to Cost Ratio (LTC), at a higher cost. Choosing the right lender is often a bigger lever than negotiating with the wrong one.
None of these is a trick to inflate the number. They work by lowering the lender’s risk, which is the only thing a higher Loan to Cost Ratio (LTC) reflects. Chasing gearing for its own sake, by thinning the contingency or stretching the budget, raises the cost of capital and the downside if the deal slips, so the better question is usually not “how high can the ratio go” but “what ratio lets this deal carry a sensible buffer at a cost that still works”.
Frequently asked questions
What is the Loan to Cost Ratio (LTC) in property development? It is the debt facility expressed as a percentage of the project’s Total Development Cost (TDC), with the lender setting a maximum it will fund. At a 75 per cent Loan to Cost Ratio (LTC) the lender covers 75 per cent of the cost and the developer funds the remaining 25 per cent in equity, so the ratio converts directly into the cash a deal requires.
What is the difference between the Loan to Cost Ratio (LTC) and the Loan to Value Ratio (LVR)? The Loan to Cost Ratio (LTC) measures the loan against what the project costs to build, while the Loan to Value Ratio (LVR) measures the same loan against what it will be worth, usually its Gross Realisation Value (GRV). Lenders apply both and size the facility to whichever produces the smaller loan, so both have to be modelled and the lower one watched.
What Loan to Cost Ratio (LTC) do Australian lenders offer? It varies by lender and deal, but senior debt generally runs around 65 to 80 per cent of Total Development Cost (TDC): banks at the conservative end near 70 per cent with the strongest pre-sale requirements, non-banks higher at a higher rate. With mezzanine finance the combined ratio can reach 85 to 90 per cent. Treat any single figure as indicative, not a quote.
What is included in the cost for a Loan to Cost Ratio (LTC)? Generally the full Total Development Cost (TDC): land, professional and consultant fees, construction, council and infrastructure contributions, finance costs including capitalised interest, and contingency. Sales and marketing commission is often the only line excluded, because it is incurred after completion. Lenders assess the budget themselves rather than taking the developer’s figure on trust.
Who pays for a cost overrun on a development loan? Usually the developer. The facility is sized to the budget at approval, so if costs blow out the lender does not automatically lend more, and the overrun is funded from contingency or fresh equity. This is why lenders stress-test the budget and require a realistic contingency, and why a higher Loan to Cost Ratio (LTC) leaves less room to absorb a surprise.
Does the Loan to Cost Ratio (LTC) include capitalised interest? Yes. On most development facilities interest is capitalised into the loan rather than serviced monthly, and lenders expect that capitalised interest to sit inside the Total Development Cost (TDC) the ratio is measured against, alongside professional fees and contingency. Leaving it out understates the cost base and overstates the ratio.
The bottom line
The Loan to Cost Ratio (LTC) is the number that decides your equity cheque: the loan as a percentage of the project’s Total Development Cost (TDC), with whatever the lender will not fund left for you to find. It is the cost-side twin of the Loan to Value Ratio (LVR), and because a development lender runs both and lends to the lower, the Loan to Cost Ratio (LTC) often turns out to be the cap that actually sizes the facility, especially on a fatter-margin deal. Build the cost base properly, including capitalised interest and a real contingency, because the lender assesses that budget and an overrun is funded from your equity rather than a bigger loan. Australian senior lenders generally hold to around 65 to 80 per cent of cost, push the rate up as the ratio climbs, and lean on pre-sales and the prudential framework to manage the risk. Model the Loan to Cost Ratio (LTC) and the Loan to Value Ratio (LVR) together, know which one binds, and treat a higher ratio as the reward for a lower-risk deal rather than a target in itself.
This guide is general information for property developers and does not take your specific circumstances into account. Lending ratios, valuations, tax rules and regulations change, so confirm the current position with the relevant primary sources and your own professional advisers before relying on any figure for a live deal.