Clarity on LTV for development projects/GDV, real security?

I would guess if they are using the GDV rather then the LTV the land has no real value if not completed and would not cover the loan 

Or ask the question in the loan's Q&A so that we all can benefit from the answer.

I was of the understanding it was, particularly in more recent valuations / credit reports.  However it's not my area of expertise hence directing lenders to the official channels.

It seems to me that LTV is not a good measure of the security of a development loan, for two reasons. Firstly the value of the security changes over the life of loan (generally upwards, but it can fall initially as demolition works are performed). Secondly the money is not (I understand) all released to the borrower at the start, but is handed over in stages as work progresses. (Does the balance sit in a client money account.) Consequently our exposure is nearly always less than is implied by a LTV calculated on the value of the security at the start of the project. FC often doesn't even raise all the cash at the start of the project, but raises additional tranches after a few months. Bridgeoak Property Finance is doing something similar, but quotes the initial LTV, and doesn't advance more money until the appreciation in value is sufficient to maintain that LTV.

The typical exit strategy for a development loan is the sale of the project. Since the commonest adverse outcomes are cost overruns (time overruns convert to cost overruns in the form of additional interest) or a failure to realise the projected sale price, LTGDV is an indication of the margin of error on the project, and how high the risk is. (Make adjustment for other factors - my rule of thumb is development loans in London and nearby areas, for high-end residential properties, and for commercial developments are more risky, as the valuations for such have higher betas.) The real problem is if a threshold is reached where it is uneconomic to continue the project. 

The other common exit strategy is by refinance (e.g. onto a commercial mortgage or buy-to-let mortgage). The LTGDV correlates with how easy it will be to raise new finance to cover what we are owed.

Where LTGDV becomes less helpful is in the event of natural disaster (fire, flood, landslip, tornado, etc), or failure to complete the project. In the former case one hopes that the project is insured. If the project is not completed due to, for example, the death or illness of the developer, it is my understanding that lenders have the option to complete the project, which may be a better option that attempting to sell a partly completed project. A project may also fail to complete because it becomes uneconomic - either because of cost overruns or falling values.

I would like to see LTGDVs labelled as LTGDVs and not as LTVs. 

Which is fine, but then they should show a LTV of 100% or higher against actual security available now, and a second LTV for GDV.

This would qualify properly the actual risk of the loan, based on security available now (as opposed to possible future returns, based on future market conditions etc).

I am not that interested in knowing that, once the project/development is completed, and assuming market conditions stay the same (e.g. properties can sell quickly at the expected price), then I may get my money back (as based on those perfect conditions, the lender is unlikely to default anyway). To me, security based on future possible value of an asset is not really security.

I am more interested in the scenario that, if the developer runs out of cash, loses interest in the project, or the market degrades and therefore makes the project non longer viable (which could happen quickly on the over-inflated property market), how much I may get back.

Sometimes, there is land value for the loan, but it's not explicitly mentioned (displayed clearly on the security page), and they use the LTV against the GDV (which is a very optimistic indicator, as opposed to a fair assessment of the risk).

It's not as straight forward as that as the development funds are not released in a single go at the start of the loan, but in stages as works are completed.  Have you (bob76) raised this with customer services to get an official response?

Sorry Chris, but I don't see the relevance of contacting customer services.

I was saying that there is a bit of lack of clarity that some loans have some "true" security (based on first charge on an existing building, or a piece of land for example) while some loans are showing LTV based only on some GDV, which sounds to me a lot less robust as security (particularly if the property market degrades suddenly, for instance).

I think the data could be presented more clearly and consistently on the site, so that people can make a better informed decision of the risk level of each loan, as opposed to looking at a single LTV ratio (with very different underlying security).

I won't personally have time to ask customer service to advise on each loan (as I also believe in diversification, spreading the amount invested on as many loans as possible, and across several P2P platforms).