Loan to cost and loan to value: which one sizes your development loan

Loan to cost and loan to value are two caps on the same development loan. Feasly's guide to development lending puts the rule in one line: the binding constraint is whichever produces the smaller facility. Which cap binds decides how much equity you need, and it can change halfway through a project.

What loan to cost and loan to value measure

• Loan to cost: the loan as a percentage of total development cost. Switchboard Finance counts the site, construction, professional fees, capitalised interest and contingency in that cost.
• Loan to value: the loan as a percentage of the project's value, usually its gross realisation value, which is the expected sales of the finished project.

Ask what every percentage is measured against. Feasly's guide notes the same dollar facility can read as 52% against one basis and 70% against another. A value quoted including GST also looks larger than the same value quoted without it, so compare offers on the same basis.

Read the definitions before the percentages

Two offers at 75% loan to cost can lend very different amounts, because each lender decides what total development cost includes. Ask three questions of every term sheet.

1. Is the land counted at what you paid for it, or at its current valuation?
2. Is capitalised interest inside total development cost? Switchboard Finance's definition includes it, which means part of the loan pays the loan's own interest.
3. Are the costs and the value quoted with or without GST, and is it the same basis on both sides?

What lenders quote

Caps vary by lender and move with the market, so treat these as indicative. Stac Capital's guide, written in July 2026, says banks typically max out at 75 to 80% of total development cost or 60 to 65% of gross realisation value, whichever is lesser. Feasly's guide puts major banks at around 65% of gross realisation value or 60 to 70% of total development cost. Switchboard Finance gives 65 to 80% loan to cost for senior debt.

A worked example

A project with a gross realisation value of $6,000,000, excluding GST, and a total development cost of $4,500,000. The lender offers 65% of value or 75% of cost.

• 65% of value: $3,900,000.
• 75% of cost: $3,375,000.
• The lender advances the lower, $3,375,000. Loan to cost binds, and you fund $1,125,000.

When costs rise

Construction runs over and total cost rises by $300,000 to $4,800,000. If the lender agrees to increase the facility, 75% of cost is now $3,600,000, still under the value cap. The loan becomes $3,600,000 and your equity $1,200,000. While loan to cost binds, the facility covers 75% of the overrun and you cover 25%.

When the valuation comes in low

Now the valuer marks the finished project down 10%, to $5,400,000. 65% of value is $3,510,000, which is under the $3,600,000 cost cap. Loan to value now binds. The loan is $3,510,000 and your equity is $1,290,000.

Compared with the original deal, costs rose $300,000 and your equity rose $165,000. The switch from one cap to the other is what does the damage: once value binds, every further dollar of cost is yours alone.

Before you sign

1. Calculate both caps on your feasibility numbers, and note which one binds.
2. Recalculate with costs 10% higher, then value 10% lower, then both together.
3. Hold equity for the worst of those, not the first.
4. Compare lender offers on the same value basis and the same definition of total development cost.

For this example, both together means a cost of $4,950,000 and a value of $5,400,000. The loan is capped at $3,510,000 by value, and the equity required is $1,440,000, which is $315,000 more than the original deal needed.