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Deed of Priority for a Second Mortgage in Australia
A deed of priority is an agreement that sets out how two lenders’ security interests rank over the same property. For a second mortgage behind a bank, it commonly establishes the first lender’s agreed priority amount and how further advances, interest, costs and enforcement proceeds will be treated.
A deed of priority is not automatically a legal requirement for registering every second mortgage. Registration rules, the borrower’s obligations under the existing bank loan and the second lender’s funding requirements are separate matters.
For business owners seeking a second mortgage, understanding those differences can help identify potential delays and assess the proposed structure before proceeding.
This guide explains what a priority deed does, whether a second mortgage can proceed without one, how redraw may be affected and what happens if the bank refuses to sign.
Innovate Funding provides business-purpose lending only and does not offer consumer loans.
What does a deed of priority do?
A deed of priority establishes an agreed relationship between lenders holding security over the same property. Registered mortgages generally rank in registration order, subject to applicable law and any agreed priority arrangements. However, knowing which mortgage ranks first does not necessarily tell the second lender how much debt could rank ahead of it.
An existing mortgage may secure more than the current loan balance, including further advances, other secured facilities, interest and enforcement costs.
A priority deed can address:
The amount for which each lender has agreed priority.
How redraw and further advances are treated.
Whether changes to facilities require another lender’s consent.
How enforcement proceeds are distributed.
Notice requirements and rights if the borrower defaults.
The effect depends on the document’s wording. Some deeds establish fixed priority amounts, while others use definitions or formulas that include particular interest and costs.
Is bank consent the same as a deed of priority?
No. Bank consent and a deed of priority address related but different issues.
Bank consent concerns whether the existing lender permits the proposed additional security under its loan and mortgage terms. A deed of priority concerns the agreed ranking and treatment of the lenders’ secured claims. It may also address notices, further lending and enforcement rights.
A bank may consent to the second mortgage subject to an acceptable priority deed. Alternatively, it may refuse the proposed deed, request amendments or decline contractual consent.
None of those decisions should automatically be treated as a land registry prohibition. Our guide to how to secure a second mortgage in Australia explains the broader application process.
Can a second mortgage be registered without a deed of priority?
Yes, in some jurisdictions a second mortgage can be registered even if the first lender refuses to sign a deed of priority. Whether a lender will fund that arrangement is a separate question. Three issues need to be assessed:
Issue | What needs to be checked |
Registration | Whether the relevant land registry requirements allow the second mortgage to be registered. |
Existing loan obligations | Whether granting further security without consent breaches the bank’s loan or mortgage terms, subject to applicable law. |
Second lender requirements | Whether the proposed lender will fund without an agreed priority deed or bank consent. |
Second mortgages in NSW
In NSW, the first mortgagee’s consent is not a land registry requirement for registering a subsequent mortgage. The NSW Registrar General confirms that consent requirements in the existing mortgage are a contractual matter between the lender and borrower, rather than a requirement policed by the Registrar General. This means a bank’s refusal to sign a priority deed does not, by itself, prevent registration of a second mortgage in NSW. However, proceeding without required contractual consent may expose the borrower to default remedies under the existing loan documents. Source: NSW Registrar General’s guidance on subsequent mortgage consent.
Second mortgages in Queensland
Queensland has a specific statutory protection.
Section 125 of the Property Law Act 2023 provides that granting a second or subsequent mortgage does not constitute a breach of the mortgage or occasion a forfeiture or penalty, despite contrary mortgage terms.
That protection does not remove unrelated defaults, such as missed repayments, or require a second lender to approve the proposed transaction. Source: Queensland Property Law Act 2023, section 125.
Other states and territories
Requirements vary. A solicitor should check the relevant jurisdiction, title and existing loan documents before the transaction proceeds.
The practical point is that the ability to register a second mortgage does not automatically establish that the proposed funding structure is acceptable to either lender.
Why might a second lender require a priority deed?
The second lender needs to understand what could rank ahead of its security if the property is sold or enforcement becomes necessary.
Further advances under the first mortgage can complicate that assessment. Legal rules concerning those advances, sometimes called “tacking”, can depend on notice, contractual obligations and applicable law.
A negotiated priority deed helps establish how those matters will be treated. It may also give the lenders agreed procedures for default notices and enforcement.
Without a deed, a second lender may be unwilling to accept the uncertainty or may assess the transaction differently. That is a lending decision, separate from whether registration is legally possible.
What is the difference between a loan balance and a priority amount?
The current loan balance, facility limit and agreed priority amount can be different.
Term | Meaning |
Current loan balance | The amount currently outstanding on the loan account. |
Facility limit | The approved borrowing limit, which may include undrawn funds or available redraw. |
Agreed priority amount | The amount or formula given priority under the deed, subject to its terms. |
A property is valued at $1 million. The bank loan balance is $400,000, the facility limit is $450,000 and the proposed second mortgage is $150,000.
Using the current balance and proposed second mortgage, combined loan LVR would be 55%, before any additional amounts included in the loans.
If the deed gives the bank a priority amount of $500,000, the second lender must also assess that agreed priority when considering its security position.
The $500,000 priority amount does not mean the borrower currently owes the bank $500,000. It also does not automatically represent the bank’s payout figure.
Innovate Funding considers the debt position, relevant facility limits, proposed loan amount, costs and priority arrangements alongside its private lending LVR guidelines.
Who signs a deed of priority?
The first and second lenders are usually parties to the deed. The borrower, property owner, guarantors or other security parties may also need to sign, depending on the document.
One lender may require its own form rather than accept the other lender’s draft. Solicitors coordinate the wording, approvals and execution requirements.
Your solicitor should explain any obligations or restrictions that apply to you before you sign.
How long does a deed of priority take?
There is no universal bank turnaround time. Timing depends on the lender’s process, the facilities involved, the proposed terms and whether amendments are required.
Where consent or a priority deed is a funding condition, the bank’s response can be a significant source of delay. Valuation, credit assessment and other legal documents also affect settlement. Innovate Funding’s published case studies include:
Published transaction | Loan amount | Reported total settlement time |
$125,000 | Six business days | |
$210,000 | Seven business days | |
$450,000 | Thirteen business days |
These are individual transaction outcomes. They measure the whole settlement process, not the bank’s deed review alone, and do not guarantee another application’s timing.
If funding is needed by a particular date, disclose the deadline at the initial enquiry. Our settlement times and approvals guide explains the other steps involved.
Who pays for the deed of priority?
The borrower commonly pays the legal costs associated with the proposed second mortgage, including priority documentation where applicable.
The existing bank may also charge a consent fee, administration fee or its legal costs.
Before proceeding, ask for a breakdown of:
The second lender’s legal costs.
The bank’s consent and legal charges.
Your own solicitor’s fees.
Additional costs if negotiations or amendments are required.
Consider these alongside interest, establishment fees and repayment conditions. Our second mortgage interest rates guide explains the broader pricing considerations.
Can a deed of priority affect redraw?
Yes. Redraw may be restricted, suspended or subject to consent.
The position depends on the bank’s loan terms, its approval conditions and the deed. Further advances may be permitted within an agreed limit, require consent or receive a different priority.
Before relying on available redraw, confirm:
Whether you can access it after settlement.
Whether existing undrawn facilities are included in the priority arrangement.
Whether a limit increase requires consent.
How further borrowing affects the second mortgage assessment.
Disclose planned redraws before terms are finalised. Drawing additional funds can change the debt position, available equity and proposed lending terms.
What happens when the second mortgage is repaid?
Your solicitor should confirm the discharge, release or termination arrangements under the deed. Do not assume repayment automatically restores every feature of the bank loan. Redraw restrictions or account changes may need to be reviewed with the bank.
If you refinance both loans, the incoming lender needs current payout figures from the outgoing lenders. Those figures may include interest, fees and discharge costs.
The agreed priority amount is not automatically the amount required to pay out the bank.
What if the bank refuses to sign the deed of priority?
A refusal does not automatically mean the second mortgage is impossible or that a caveat loan is the only alternative.
First, establish what the bank has refused:
The proposed wording or priority amount.
Contractual consent to additional security.
A change to its existing facility.
Participation in the proposed arrangement.
Depending on the circumstances, the options may include:
Negotiating the deed. Revised priority amounts or other terms may address the bank’s concerns.
Changing the funding structure. A lower loan amount, different security or another lender may produce a workable transaction.
Considering a second mortgage without the deed. This depends on registration requirements, applicable law, existing loan obligations and the second lender’s willingness to proceed.
Refinancing the first mortgage. A private first mortgage refinance may be considered where paying out the bank creates a suitable structure. The total costs and repayment strategy need to be assessed.
Considering caveat-backed funding. This requires a valid underlying interest and legal assessment. It should not be presented as an automatic way around existing mortgage restrictions.
Does a caveat loan require the bank’s consent?
A caveat is not a registered mortgage, and bank consent is not a universal prerequisite to lodging one. A lender must have a valid caveatable interest, such as an equitable mortgage or charge. The caveat protects the claimed interest; it does not create that interest or provide the same registered security position as a mortgage.
The existing bank’s loan documents may also restrict additional security. Those contractual obligations must be assessed separately, subject to applicable law.
A caveat can be challenged, removed or made to lapse. Whether caveat-backed funding is suitable therefore depends on the underlying documents, title, jurisdiction and lender requirements.
What should you provide with your enquiry?
To help assess the proposed structure and identify potential consent or priority issues, provide:
The security address and estimated property value.
The existing lender’s name.
Current balances and limits for facilities secured against the property.
Available redraw and any planned further borrowing.
Whether repayments are current or in arrears.
Any consent request or refusal already received.
The net amount required and business purpose.
Your preferred term and funding deadline.
The proposed repayment or exit strategy.
Borrower details, including the relevant ABN or ACN.
Innovate Funding funds suitable property-secured loans from its own capital and arranges others through private and non-bank lending partners.
Submit your scenario or email deals@innovatefunding.com.au to discuss your requirements.
Frequently asked questions
Is a deed of priority compulsory for every second mortgage?
No. A priority deed is not a universal registration requirement. It may nevertheless be required by the existing lender or proposed second lender as a condition of the transaction.
Can a second mortgage be registered if the bank refuses the priority deed?
In some jurisdictions, yes. In NSW, first mortgagee consent is not a registry requirement for registering a subsequent mortgage. Existing loan obligations and the second lender’s funding requirements still need to be assessed.
Can the bank treat an unapproved second mortgage as a default?
Potentially, where the existing documents require consent and applicable law permits that consequence. It is not a uniform Australian rule. Queensland legislation specifically protects the granting of a subsequent mortgage from constituting a mortgage breach or occasioning a forfeiture or penalty.
Is a priority deed the same as a deed of postponement?
They describe related arrangements but are not automatically interchangeable. A deed of postponement generally subordinates an interest, while a priority deed may address priority amounts and other lender rights. The wording determines the effect.
Can I redraw after signing a priority deed?
Redraw may be restricted, suspended or subject to consent. Confirm the position with your bank and solicitor before relying on those funds.
Does a caveat provide the same security as a registered second mortgage?
No. A caveat protects a claimed interest in land but does not itself create a registered mortgage. Its effect and the lender’s rights depend on the underlying interest, documents and applicable law.
Can a business-purpose second mortgage be secured against my home?
An owner-occupied home may be considered as security for a business-purpose facility, subject to assessment and lender requirements. Using a home as security does not itself determine whether the loan is consumer credit. The borrower and intended use of funds must be assessed, and the property is at risk if the loan is not repaid.
Innovate Funding does not offer consumer loans. All facilities are subject to assessment, valuation, legal due diligence and lender approval. Whether a facility falls outside the National Credit Code depends on the borrower and intended use of funds. This article provides general information and is not legal, tax or financial advice. Obtain independent advice about your loan documents, registration requirements and any priority deed before proceeding.
