Caveat Loans and Second-Mortgage Finance Australia

A caveat loan is one of the fastest and most expensive ways a property developer can raise money against a site, and the search results for it are almost entirely lenders selling the product. That leaves a gap for a plain read on what you are actually signing: where the money sits behind your senior debt, why it is priced the way it is, what happens to your priority if the deal turns, and when a short, sharp caveat facility genuinely helps a feasibility rather than quietly eating the margin.

This guide is written for the developer weighing a caveat loan or a second mortgage to cover a short funding gap, not for the lender writing it. It covers what a caveat loan is and how it differs from a registered second mortgage, where both sit in your funding stack and why the cost lands so fast, the priority and consent rules that decide who gets paid first, how these lenders actually enforce when a borrower defaults, the state-by-state and New Zealand differences that affect your deal, and how to model the cost before you commit. Treat the figures here as current-market indications rather than fixed quotes. Private lending pricing moves with the cash rate, the asset, and your exit, and a rate quoted in mid-2026 may read differently in a year.

What is a caveat loan, and what is it not?

A caveat loan is a short-term, business-purpose loan secured by an equitable charge over property, with a caveat lodged on the title to protect that charge. It is fast, it is priced for speed, and it is designed to cover a gap of a few weeks to a few months, not to fund a build. Most lenders settle a caveat facility in one to three business days, sometimes same-day, because the assessment turns on the value of the property and the strength of your exit rather than on income verification.

The important point that the marketing tends to skate over: the caveat itself is not the security. A caveat is a statutory notice that you claim an interest in land, and once recorded it operates as a pause on the Register, preventing certain dealings from being registered without notice to you. It does not create a new interest, it does not transfer ownership, and on its own it does not give the lender a power of sale. The security the lender actually relies on is the equitable mortgage or charge created by a clause in the loan agreement. The caveat just protects that charge by stopping the borrower from selling or refinancing the property out from under it. The mechanics of what a caveat can and cannot do are covered in depth in the guide to caveats on property title; this guide focuses on the loan sitting behind it.

For a developer, that distinction shapes everything about how a caveat loan behaves. Because the lender’s position rests on an equitable interest rather than a registered mortgage, the loan tends to be quick to put on and, as covered below, slower and messier to enforce. That trade, speed on the way in for weakness on the way out, is exactly why these facilities are priced where they are.

A caveat loan is also not a construction facility and not a substitute for senior development debt. It funds the gap between a trigger event, usually site acquisition, a deposit call, a development approval, or an incoming senior facility, and the point where longer-term funding takes over. Used against a certain, dated exit, it can be a sensible bridge. Used to plug a hole with no clear repayment event, it tends to compound the problem.

Caveat loan vs second mortgage: what is the real difference?

The practical difference is registration. A second mortgage is registered on the title behind the first mortgage and gives the lender a registered security interest, including a statutory power of sale. A caveat loan is not registered as a mortgage at all: the lender relies on an unregistered equitable charge and lodges a caveat to protect it. Both are forms of junior debt sitting behind your senior lender, and some lenders use the terms loosely, but the security mechanism is genuinely different and it changes the lender’s rights, the cost, and the speed.

The table below sets out how the two typically compare in the current Australian market.

The takeaway for a developer: a caveat loan generally wins on speed and on deals where your senior lender will not agree to a registered second mortgage, while a registered second mortgage generally wins on price and term. If you have time to arrange consent and a priority deed, the registered route is usually cheaper. If you need the money this week and the first mortgagee will not play, the caveat route may be the only option, and you pay for that.

Both products belong to the same family as mezzanine finance, which is any subordinated layer sitting behind senior debt and ahead of your equity. A caveat loan or second mortgage is often simply how a smaller mezzanine-style position is secured on a residential or small commercial project.

Where do caveat loans and second mortgages sit in the capital stack?

They sit near the top of the capital stack, just below your equity in risk terms and behind your senior debt in repayment terms. That position is the whole reason the cost is high. The senior lender holds the first mortgage and gets repaid first from any sale or refinance. The caveat or second-mortgage lender only gets paid once the senior debt is cleared, so it is exposed to the top, riskiest slice of the property’s value. Price follows risk.

A simplified residential development stack shows why the numbers land where they do.

Because the junior lender sits behind senior and typically caps out around 75 to 80% of value, it has a thin buffer of equity beneath it. If the project value slips, the junior position is the first debt to be impaired. Lenders price that exposure into the rate and the fees, and they price it per month because the terms are short.

This is also why a caveat loan or second mortgage can quietly reshape your peak debt exposure. Adding a junior tranche lifts your total gearing and your total interest bill at exactly the point in the project where you are most exposed, before sales settle. Modelling that peak matters more than the headline rate.

What does a caveat loan actually cost in 2026?

Expect the all-in cost of a caveat loan to sit well above your senior rate, made up of monthly interest plus several fees compressed into a short term. As a current-market guide, interest is usually quoted per month and commonly falls somewhere in the range of about 0.8% to 2.5% per month, which is roughly 10% to 30% or more per annum. The lowest advertised rates, around 0.77% to 0.79% per month, tend to apply to strong, low-loan-to-value deals on residential security, while higher-risk or lower-quality security sits at the top of the range. Registered second mortgages for the same borrower are often a little cheaper than a caveat facility.

On top of interest, most facilities carry:

• An establishment or line fee, commonly around 2% to 5% of the loan amount.
• Legal and documentation costs, which may typically run from about $1,500 to $3,500, sometimes more on commercial security.
• A discharge or exit fee payable when the loan is repaid and the caveat is withdrawn.
• Valuation costs, where a valuation is required, though some lenders lend on a desktop or automated value for speed.

What makes a caveat loan feel expensive is not any single number but the compression. All of these costs land inside a short window, so a rate that looks survivable as an annual figure hits hard over three or four months.

A hedged worked example shows the effect. Suppose a developer takes a $500,000 caveat loan for four months to cover a deposit while a senior facility is finalised. At around 1.8% per month, interest may total roughly $36,000. Add an establishment fee at 3% (about $15,000), legal costs of around $2,500, and a discharge fee of around $1,500, and the total cost may sit near $55,000. On $500,000 over four months, that is about 11% of the principal, or an all-in cost equivalent to roughly 33% per annum. The point is not the exact figure, which will vary with the lender and the deal, but the shape: short-term junior money is costed in a way that can swallow a meaningful chunk of a thin development margin if the exit slips.

Interest on these facilities is also usually capitalised rather than paid monthly in cash, because a development site produces no income before settlement. Capitalising interest keeps your cash flow clear during the term, but it grows the payout figure every month the loan runs, so an exit that drifts from four months to eight months does more than double damage: it adds interest on interest and often triggers extension fees or a higher default rate.

Why are caveat loans described as “unregulated”?

Caveat loans and development second mortgages are usually written as business-purpose loans, which sit outside the consumer credit regime. When credit is provided wholly or predominantly for business or investment purposes (other than investment in residential property), the National Consumer Credit Protection Act 2009 (Cth) and the National Credit Code generally do not apply. The lender does not need to hold an Australian Credit Licence for that loan and is not bound by the responsible-lending obligations that apply to consumer credit.

For a developer, that cuts both ways. On the upside, it is why these facilities are fast: the lender can approve on asset value and exit strategy without the income verification and serviceability assessment a regulated lender must perform, so your tax returns and living expenses are largely beside the point. On the downside, you are giving up the consumer protections that come with regulated lending. There is no responsible-lending safety net, dispute pathways can be narrower, and the terms are whatever the loan agreement says they are, which is why reading the default clauses matters more here than almost anywhere else.

One trap to be clear about. The business-purpose exemption depends on the loan genuinely being for business or investment. Lenders typically ask the borrower to sign a business-purpose declaration. Under section 13 of the National Credit Code, a declaration is ineffective if the person who relies on it knew, or had reason to believe, that the credit was in fact for a personal or domestic purpose, and making a false declaration can be an offence. If the true purpose is consumer rather than business, the declaration does not make the loan unregulated, and dressing a personal loan up as a business one to access these products is a mistake for both sides. For a genuine development deal the business purpose is usually obvious, but it is worth confirming the money is going where the declaration says it is.

The private-credit segment that writes these loans has also drawn closer regulatory attention. The Australian Securities and Investments Commission (ASIC) has been examining transparency and conduct in private credit, so expect documentation and disclosure standards among the more established lenders to keep tightening. That is a reason to favour a lender that runs a clean, well-documented process over one that simply promises the fastest settlement.

Priority: who gets paid first if it goes wrong?

Priority between mortgages generally runs in order of registration, “first in time, first in right”, so your senior first mortgagee ranks ahead of a later second mortgage or caveat-protected charge. That order is not quite as fixed as it looks, and two features can move it, both of which matter to a developer stacking junior debt on a site.

The first is tacking of further advances. Where the first mortgage secures future advances as well as the original loan, the first mortgagee can generally “tack” later advances onto its first-ranking security and keep priority over a second mortgage, but only until it has actual notice of the second mortgage. As the International Bar Association’s analysis of further advances and priority explains, once the first mortgagee has actual notice of the later security (and registration alone is generally not treated as notice), further advances it makes tend to rank behind the second mortgagee. For a developer, the practical consequence is that a second-mortgage or caveat lender will usually want the first mortgagee formally notified, and will often want the first mortgagee’s further-advance rights capped, so the senior lender cannot keep lending ahead of them.

The second is a deed of priority, sometimes called a deed of postponement or an intercreditor deed. This is an agreement between the lenders that sets the order of repayment and each lender’s rights on default, and it can confirm or rearrange the default priority. It typically fixes a “priority amount” for the first mortgagee, the maximum that ranks ahead of the junior lender, so the second lender knows exactly how much senior debt sits in front of it. A recent Queensland decision, JSY Securities Pty Ltd v Dakabin Homes Pty Ltd [2026] QSC 106, shows how much rides on the drafting: a first mortgagee funding a townhouse development had advanced around $5.4 million, a second mortgagee had advanced about $1.44 million, and a deed of priority governed how a further $4 million first-mortgage advance ranked against the second mortgage. Cases like this turn on the precise words of the priority amount, which is why a junior lender will not usually advance without one, and why you as the borrower should understand what it caps.

Whether the first mortgagee’s consent is needed to register a second mortgage now varies by state. In New South Wales, since the move to electronic conveyancing and the abolition of paper certificates of title from 11 October 2021, a second mortgage no longer requires the first mortgagee’s consent to be registered, though lenders still commonly want a deed of priority. In Victoria, the incoming second mortgagee generally has to obtain a title nomination through the electronic lodgement network from the party controlling the title, which is usually the first mortgagee, so the senior lender is effectively in the loop and a short deed of priority plus a fee is common. A caveat, by contrast, can generally be lodged without the first mortgagee’s consent, which is part of why caveat loans move faster than registered second mortgages.

How does a caveat lender actually enforce?

This is the part borrowers most often underestimate: a caveat does not give the lender a quick power of sale. Because the caveat only protects an equitable charge, the lender cannot simply appoint an agent and sell the property the way a registered mortgagee can. To recover, the lender generally has to enforce the underlying equitable mortgage, which usually means going to court for a declaration that it holds an equitable mortgage and an order for judicial sale, or relying on specific contractual rights in the loan agreement. As legal commentary on whether a caveat protects a lender makes clear, the caveat is a protective notice, not the security itself, and enforcement runs through the charge, not the caveat.

A registered second mortgagee is in a stronger position on enforcement. It holds a registered mortgage and generally has the statutory power of sale under the relevant state Act, so it can enforce more directly, though always subject to the first mortgagee’s prior claim and any deed of priority. That difference in enforcement power is one reason a registered second mortgage is often cheaper than a caveat loan: the lender’s exit is cleaner, so it prices in less risk.

There is a further wrinkle that cuts against a caveat lender. A caveat can be knocked off the title by the registered owner through a lapsing process, and the timeframes are short. If a borrower or the first mortgagee serves a lapsing notice, the caveat lender has a limited window to go to court to sustain the caveat or lose its protection on title. That vulnerability is exactly why experienced caveat lenders rarely rely on a bare caveat alone. They back it with a well-drafted charging clause, personal guarantees, and often a registered mortgage as well where they can get one. As a borrower, the flip side is that these instruments are stickier than they look: the lapsing process removes the caveat, but it does not extinguish the debt or the charge behind it.

How do the rules differ across states and territories?

The framework is broadly similar across Australia because every state and territory runs a Torrens title system, but the governing legislation, the caveat lapsing timeframes, and the second-mortgage registration mechanics differ, and those differences affect how quickly a lender’s security can be challenged. The table sets out the governing Act in each jurisdiction.

A few points are worth drawing out for a developer. In New South Wales, a registered proprietor can apply to the Registrar-General to prepare a lapsing notice, after which the caveator generally has about 21 days to obtain a Supreme Court order extending the caveat, and in practice a court practice note can compress the usable time further. Victoria’s period runs to around 30 days under the Transfer of Land Act 1958 (VIC), which gives a caveat lender a little more breathing room than New South Wales. Queensland runs the tightest common trigger: under the Land Title Act 1994 (QLD), a caveat lodged without the owner’s consent lapses three months after lodgement, but the owner can serve a notice that shortens the window to 14 days to start proceedings. For the remaining states and territories, the mechanism is the same notice-and-lapse model under each Act, and the safe move is to confirm the exact period with the relevant land registry before relying on it.

Where the topic genuinely does not vary is the core commercial reality: in every jurisdiction the junior lender ranks behind the senior, needs a caveatable interest or a registered second mortgage to have security at all, and is exposed to a lapsing process that can strip a caveat off the title quickly. The precise clock changes; the risk profile does not.

Do caveat loans and second mortgages work the same way in New Zealand?

The structure is very similar in New Zealand, because it runs the same kind of Torrens system under the Land Transfer Act 2017 (NZ). A lender can take a registered second mortgage that ranks behind the first, or protect an unregistered interest with a caveat, and the commercial logic of junior, short-term money being priced for risk is the same as in Australia.

The lapsing process is where a New Zealand developer should pay attention. Under the Land Transfer Act 2017, a registered owner or other eligible person can apply to lapse a caveat, and Land Information New Zealand’s guidance on lapsing a caveat explains that the caveator then generally has 14 days to notify the Registrar that it has applied to the High Court to sustain the caveat. Miss that window and the caveat lapses by operation of law. That 14-day trigger is tight, so a New Zealand caveat lender is in a broadly similar position to an Australian one: the caveat protects the interest but can be removed quickly, and the lender’s real security is the charge behind it.

On regulation, New Zealand draws a similar line between consumer and business lending. The Credit Contracts and Consumer Finance Act 2003 (NZ) applies to consumer credit contracts, so development finance taken for business or investment purposes generally sits outside its consumer protections, much as the business-purpose exemption works in Australia. New Zealand also has no stamp duty on land, which removes one acquisition cost from the feasibility but does not change how junior finance is priced. As always, confirm the current position with a New Zealand adviser, as the regime around the Land Transfer Act and resource management continues to shift.

When does a caveat loan make sense for a developer?

A caveat loan or second mortgage tends to make sense when you have a genuine, short, and dated funding gap with a certain exit, and it tends to hurt when you do not. The single question that separates a sensible bridge from an expensive mistake is: what repays this loan, and when? If you can name the event and the date, a short caveat facility can be a reasonable tool. If you cannot, the cost structure is likely to work against you.

Situations where a short caveat facility may earn its place include:

• Covering a deposit or completing a settlement while an approved senior facility is finalised, where the senior drawdown is the clear, near-term exit.
• Bridging the gap between an unconditional sale and its settlement, where incoming proceeds repay the loan on a known date.
• Funding a genuinely short pre-approval cost, such as securing a site under option while a longer facility is arranged, where the timeline is measured in weeks.

Situations where it usually does not work include:

• Funding construction, which needs a proper development facility with staged drawdowns, not top-slice junior money.
• Plugging a cash shortfall with no defined repayment event, where you are effectively hoping something turns up before the term ends.
• Rolling a caveat loan repeatedly, where each extension adds fees and often a higher rate, and the capitalised interest compounds against a margin that was already thin.

Because the risk is concentrated in the exit, the discipline is to price the downside, not the base case. Ask what the loan costs if the exit slips by three months, whether the term can be extended and on what terms, and what the lender’s default rate and enforcement rights are. A good development finance broker can also test whether a cheaper registered second mortgage, or simply more equity, would leave you better off than a fast caveat facility.

How should you model a caveat loan in your feasibility?

Model it as a short-term junior facility with capitalised interest, and stress the term rather than trusting the base case. The cost of a caveat loan is dominated by how long you hold it, so the number that matters is not the monthly rate in isolation but the total cost across the range of realistic exit dates. Build the facility into the funding stack behind your senior debt, capitalise the interest so the payout figure grows month by month, and add the establishment, legal, and discharge fees as one-off costs at the right points in the timeline.

Then flex it. Run the feasibility with the loan held for its expected term, then again for a longer term, and watch two outputs: the development margin and the peak funding position. A caveat facility that looks trivial at four months can turn a modest margin negative at eight, and because it sits on top of your senior debt it lifts your peak exposure at the worst moment in the project. This is the kind of layered debt and sensitivity work a feasibility platform is built for. In Feasly, you can add the facility as a junior tranche in the funding stack, set the interest to capitalise, and run sensitivity across the months held and the exit date to see what the loan does to your margin and peak debt before you sign. Feasly does not price the loan or calculate any duty for you, but it will show you, clearly, what a few months of expensive junior money does to the deal.

The honest conclusion for most developers is that a caveat loan is a precision tool, not a general-purpose one. Against a certain, near-term exit it can get a deal moving that would otherwise stall, and the cost is a reasonable price for speed and certainty. Stretched across an uncertain timeline, it is among the quickest ways to erode a development margin. The difference is almost entirely about the exit, so model that first, and let the number decide.

Key questions to ask before signing a caveat loan

• What exactly repays this loan, and on what date? If you cannot answer precisely, reconsider the facility.
• What is the all-in cost, including establishment, legal, discharge, and any line or exit fees, expressed as a total dollar figure over the expected term?
• Is the interest capitalised, and what does the payout figure look like if the term runs one, three, or six months longer than planned?
• Can the term be extended, and at what rate and fee? What is the default interest rate?
• Is this a caveat-protected charge or a registered second mortgage, and how will the lender enforce if you default?
• Has the first mortgagee been notified, and is a deed of priority required? What priority amount ranks ahead of this loan?
• Which state or territory governs the security, and how quickly could a lapsing notice affect the lender’s position?

This guide is general information for property developers and is not legal, financial, or tax advice. Caveat and mortgage law, lending regulation, and pricing all change, and every deal sits in its own context, so confirm the current position for your project with a qualified lawyer, broker, or adviser and against the primary sources linked above before you act.