Understanding how lenders size and price a loan is half the battle to getting approved on the terms you want. In Spain, three ratios do most of the heavy lifting: LTV (Loan-to-Value), LTC (Loan-to-Cost) and DSCR (Debt Service Coverage Ratio). Master these, and you’ll know how much you can borrow, which product fits (secured loan, bridge, refinance, equity release), and what to fix before you apply. Kredit Spain can structure your case around these metrics so you clear underwriting cleanly.

What LTV Means (and Why It Drives Your Maximum Loan)

Loan-to-Value (LTV) compares the loan amount to the lender’s accepted value of your property—usually the valor de tasación from a Banco de España–approved or RICS valuation.

Formula:
LTV = Loan Amount ÷ Appraised Value

Example:
If your home appraises at €400,000 and you borrow €200,000, your LTV is 50%.

Why it matters in Spain

• Lenders set LTV caps by product, property type and borrower profile.
• For secured and bridge facilities, workable bands often sit around 40–60% (varies by lender and case).
• Lower LTV generally means better pricing, smoother approvals and more flexible structures.

How to improve your LTV

• Increase appraised value with targeted renovations and clean documentation (align deed, Land Registry and Catastro).
• Reduce requested loan size or add additional collateral.
• Time valuation after value-adding works and snagging are complete.

What LTC Is and When It’s Used

Loan-to-Cost (LTC) compares the loan to the total project cost—purchase price plus taxes and fees, or renovation budget where relevant. It’s common in development, heavy refurb or acquisition-plus-works scenarios.

Formula:
LTC = Loan Amount ÷ Total Project Cost

Example:
Buying at €300,000 with €60,000 in works and €20,000 in fees puts total cost at €380,000. A €200,000 facility implies an LTC of ~53%.

Why it matters

• Lenders want you meaningfully invested in the project (your equity at risk).
• Managing both LTC (today’s inputs) and LTV (tomorrow’s value) is key if you plan to renovate, then refinance and release equity.

How to improve your LTC

• Contribute more equity at purchase or fund part of the works from savings.
• Phase works and finance in stages with clear milestones and contingency.
• Obtain realistic contractor quotes and include taxes/fees to avoid overruns.

DSCR: The Ratio That Sizes Income-Backed Loans

Debt Service Coverage Ratio (DSCR) tests whether the property’s net operating income (NOI) comfortably covers annual debt service (interest and, if applicable, amortisation).

Formula:
DSCR = Annual Net Operating Income ÷ Annual Debt Service

NOI basics for Spanish property

• Start with gross annual rent (or conservative market rent if vacant).
• Subtract running costs borne by the owner: community fees, insurance, maintenance, property management, IBI, and a vacancy/credit loss allowance.
• Exclude debt costs—NOI is pre-debt.

Example:
Gross rent €24,000. Running costs €6,000.
NOI = €18,000. Annual debt service = €14,000.
DSCR = 18,000 ÷ 14,000 ≈ 1.29× (often acceptable; stronger if ≥1.30–1.40×).

Why it matters

• Many income-based lenders look for DSCR ≥ 1.20×–1.40× depending on risk.
• Higher DSCR supports larger loans, better pricing, or interest-only periods.

How to improve your DSCR

• Increase NOI: optimise rents, reduce downtime, improve energy efficiency and running costs.
• Optimise debt service: longer term, interest-only period, or slightly lower loan size to keep DSCR strong.
• Present evidence: current leases, rent rolls, community receipts, IBI, insurance, service contracts.

How Lenders Use These Ratios Together

• Secured/equity-release loans: LTV is primary; DSCR can be secondary if you want amortising terms.
• Bridge loans: LTV dominates plus a credible exit strategy; DSCR may be less critical if exit is sale/refinance.
• Acquisition + renovation: Lenders look at both LTC (skin in the game) and post-works LTV; DSCR matters if you’ll refinance into an income-backed facility.

Spain-Specific Nuances That Change the Numbers

• Valuation standard: Lenders rely on tasación; market headlines don’t set LTV. Make the property match the paperwork.
• Property type and micro-location: Coastal, prime urban, rural (rústico) and holiday lets carry different appetite and LTV/DSCR expectations.
• Licensing & compliance: Unlicensed extensions or use-class issues depress valuation and complicate DSCR underwriting.
• Documentation quality: Clean nota simple, Catastro match, IBI and community receipts help both valuation and credit.

Common Mistakes Borrowers Make with Ratios

• Assuming headline market price will be the lending value.
• Booking valuation too early—before renovations or legalization are complete.
• Over-levering on optimistic DSCR (forgetting costs, vacancy, seasonal rents).
• Ignoring LTC and under-budgeting taxes/fees, then running out of cash mid-project.
• Chasing a bank-only route when asset-backed products fit better.

How Kredit Spain Structures Around LTV, LTC & DSCR

• Pre-fit analysis: We size the loan against realistic LTV/LTC/DSCR before any application.
• Valuation management: Banco de España or RICS tasación, timed and briefed to capture value drivers.
• Income case building: Rent rolls, realistic NOI, and structures (interest-only, staged drawdowns) that keep DSCR healthy.
• Product selection: Bridge for speed and clear exits, equity release for liquidity without selling, or longer-term secured solutions for cost stability.
• Plan B ready: If valuation lands lower or NOI is thinner, we adjust LTV, add collateral, or pivot product so the deal still closes.

Quick Prep Checklist

• Target LTV that fits product appetite (often 40–60% for many secured/bridge cases).
• If renovating, map LTC fully: purchase, works, taxes, fees and contingency.
• For income cases, assemble leases, management contracts, IBI/community receipts and a clean NOI.
• Align deed, Land Registry and Catastro before valuation.
• Decide upfront whether you need speed (bridge), liquidity without selling (equity release), or lower long-term cost (refi).

Bottom Line

LTV tells you how much you can borrow against today’s value. LTC keeps your project budget honest. DSCR proves the income can carry the debt. Nail these three, and underwriting in Spain becomes predictable. Kredit Spain can design your finance around these ratios—so you borrow the right amount, on the right structure, and complete on time.