Why does the lowest test set the loan?
A lender sizes a facility on every covenant it will hold you to, then lends the smallest result. On a development scheme loan to cost usually binds first. On an operating asset, interest cover or debt yield often binds when rates are high, even where the valuation would support more.
| Test | Formula | Where it bites |
|---|---|---|
| Loan to cost (LTC) | Total cost × maximum LTC | Development finance, where cost is certain and value is not yet proven |
| Loan to value (LTV) | Value or GDV × maximum LTV | Investment and refinance debt, and as a cap on development loans |
| Interest cover (ICR) | Net operating income ÷ (minimum ICR × interest rate) | Term debt on let assets, especially when base rates are high |
What is debt yield on a student scheme?
Debt yield is net operating income divided by the loan. It ignores interest rates and valuation yields entirely, so lenders use it as a simple floor on risk. Many PBSA investment lenders look for a debt yield comfortably above the current cost of their own funding.
Questions
What loan to cost can I get on a PBSA development?
Senior development lenders typically lend 60 to 70% of total cost, capped at around 60 to 65% of gross development value, subject to status, valuation and lender criteria.
Which interest rate should I enter?
Enter an all-in rate: the lender margin plus SONIA or the swap rate for the term. For an interest cover test lenders often stress the rate above today's level.
Written and reviewed by Matt Lenzie, Founder and principal. Last reviewed .