Second Mortgage Behind a Construction Loan: Consent, Priority, Cost
Construction Hub
Second Mortgage · Deed of Priority · First Mortgagee Consent
Your senior construction facility is in place and it will not stretch. A second mortgage behind it can close the gap, but it turns on questions the field rarely answers together: whether the first mortgagee can stop you, whether its next drawdown still outranks you, and what the paperwork actually costs, state by state.
Quick Answer
You can usually put a second mortgage behind a construction loan where the site holds equity above the senior debt on an as-is basis and a deed of priority documents the senior's position. Whether your first loan can stop you now depends on which state you are in.
Also called junior debt, second-position debt, a subordinate mortgage, or, when the build has already stopped, construction completion finance.
In this guide
- Can you put a second mortgage behind a construction loan?
- Why won't the senior lender just increase the construction loan?
- What should you do first when the construction facility will not stretch?
- Can a first mortgagee refuse a second mortgage?
- Does registering a second mortgage still need the bank's consent?
- Does your first loan contract stop you granting a second mortgage?
- What is a deed of priority and what does it actually cap?
- What do you ask the first mortgagee, and who do you ask?
- How does the senior lender's construction drawdown keep its priority?
- Who has to tell the first mortgagee about the second mortgage?
- What does it cost to register the priority instrument, and does it differ by state?
- How long does a second mortgage behind a construction facility take to settle?
- Second mortgage, mezzanine or preferred equity: which does the senior permit?
- What gets a second mortgage behind a construction facility declined?
- What happens to the second mortgagee if the project stalls or the senior enforces?
- What happens at practical completion when the facility is refinanced?
Can you put a second mortgage behind a construction loan?
Yes, in most cases you can. A second mortgage can sit behind an existing construction loan where the property holds enough equity above the senior debt on an as-is basis, and where the senior lender's position is dealt with properly, usually through a deed of priority between the two lenders.
The instrument is a registered mortgage over the same title, ranking behind the construction facility. If the product itself is new to you, start with how a second mortgage works before you add one to a live build, or the broader guide to second mortgages in Australia. Where the numbers stack up, second mortgage loans of this kind can usually be arranged without disturbing the senior facility, and the rest of this guide covers the construction layer: whether anyone has to consent, how the senior's future drawdowns rank, and what the paperwork costs.
One scope note before the detail. This guide is written for developers and business owners borrowing against a project site. If you are an owner occupier building your own home, start with the construction loan guide for self employed borrowers instead, because the consumer credit rules that apply there change the answer to almost every question below.
Why won't the senior lender just increase the construction loan?
Because the facility was sized on day one and the project was not. The common triggers are costs moving past the contingency after variations, an equity gap opening between the land debt and the build budget, and holding costs accruing while presales or settlements run late. Each one leaves a funded project with an unfunded gap, and a senior facility is rarely willing to stretch mid-build.
That is the situation this guide covers: a development site behind a stretched senior facility, where repricing or rewriting the whole senior debt would cost more than funding the shortfall behind it. The alternatives when construction costs outrun the senior facility range from equity injections to subordinate debt, and a registered second mortgage is the most formal of them.
Two constraints shape whether it works. First, a second mortgage needs equity above the senior on an as-is basis, and construction sites are valued conservatively before completion, so the workable gap is narrower than the on-completion or gross realisation value numbers suggest.
Second, the combined debt against the site still has to sit inside the incoming lender's LVR appetite, which is a policy question rather than a published figure. Most of this lending sits with private and specialist funders rather than the banks that write the senior development finance; non-bank lenders remain a small share of the financial system overall, as the Reserve Bank's March 2026 Financial Stability Review records.
Where a second mortgage commonly fits
- A costed overrun after variations, with the scope now fixed
- An equity gap between the land debt and the build budget
- Holding costs while presales or settlements catch up
- Working capital locked in a site the senior will not release
What it cannot fix
- No equity above the senior on an as-is basis
- A shortfall that keeps growing with no fixed scope
- An exit that depends entirely on the same sale the senior relies on
- A build with no credible cost to complete
What should you do first when the construction facility will not stretch?
Read the first mortgage before you speak to anyone about money. Its further encumbrance clause decides whether you have a funding problem or a default problem, and that is a different conversation with a different urgency.
Most files that fail behind a construction facility fail on sequence rather than on merit. The order below front-loads the two steps that kill deals late, and both of them are free.
- Read the first loan's terms. Two clauses matter: the covenant restricting further encumbrances, and the drawdown clause that says whether the senior must fund each progress claim or may choose to. Send both to your own solicitor, not the senior's.
- Fix the number. A shortfall that is still moving cannot be funded by anyone. Get the builder's remaining cost to complete in writing, with the variations already agreed.
- Test the equity on an as-is basis. Not on completion, and not on gross realisation value. If there is no room above the senior today, nothing after this step matters.
- Approach the senior about a deed of priority. Before you approach anyone about money. It is the longest lead item and the most common reason a booked settlement slips.
- Then take the file to a lender. With the terms read, the number fixed, the as-is position known and the senior's answer in hand, the credit decision is quick.
If the senior has already stopped funding rather than simply refused to increase, this is not the sequence you are on. That is covered in the guide to a construction funder withdrawing mid build, and it moves faster. Whether granting a second mortgage would breach a facility you have already signed is a legal question for a solicitor, not a broker, and it is worth asking before step four rather than after.
Can a first mortgagee refuse a second mortgage?
A first mortgagee cannot usually stop a second mortgage from being registered, but that is not where its power lives. Its real levers are the terms of its own loan contract and, more practically, the deed of priority that most incoming lenders require before they will fund. Those are three different questions, and most of what is written on this topic collapses them into one.
The registration question is a registry question, and in New South Wales the answer changed in October 2021, covered in the next section. The contractual question is whether your first loan's terms restrict further encumbrances, which is where first mortgagee consent actually bites, and where Queensland now stands alone, covered below. The practical question is whether the bank will consent to a second mortgage in the form the incoming lender needs, because most second mortgage lenders will not settle behind a construction facility without a priority arrangement in place.
So a refusal is rarely a flat no at the registry. It is a no to the deed, and that is usually where a declined deal actually dies.
Does registering a second mortgage still need the bank's consent?
In New South Wales, no, and it has not since 11 October 2021. When NSW abolished paper certificates of title and the control of the right to deal framework, the Registrar General confirmed that second or subsequent mortgages no longer require CoRD holder consent to register, while noting that it remains important to check the terms of the first registered mortgage. The Registrar General's own guidance, read August 2026, treats any residual consent requirement as a contractual matter between the parties, not something the registry polices.
Victoria has moved in the same direction by a different mechanism. From 3 August 2024, all new Victorian certificates of title are issued electronically, and Land Use Victoria states that existing paper certificates remain valid until they are next required for a conveyancing transaction. Where a paper certificate still exists, producing it can still matter in practice, so the transition is not as complete as the NSW abolition, and how a particular dealing proceeds is one for the lodging conveyancer.
Queensland answers the question at the level of the loan itself: since 1 August 2025 a mortgagor may grant a second or subsequent mortgage as a matter of statute, covered in the next section. Priority between registered mortgages there is varied by an instrument amending priority, lodged under Titles Queensland's Form 30 practice and executed by all affected mortgagees.
One distinction worth keeping precise: where a first loan's terms do require the lender's written consent, that consent is its own document, often called a deed of consent, and it is not the same instrument as a deed of priority. The consent says yes to the second mortgage existing; the priority deed sets how the two securities rank, which the deed of priority section covers below. Whether your first mortgage requires consent at all is a question for the solicitor reviewing its terms.
| State | Registration consent required | What changed and when | Contractual consent still required | Instrument used to vary priority |
|---|---|---|---|---|
| NSW | No. CoRD holder consent has not been required since 11 October 2021 | Paper certificates of title and the CoRD framework abolished, 11 October 2021 | Possibly. The Registrar General treats it as a contractual matter between the parties | Memorandum of postponement under the Real Property Act 1900, section 56A |
| Victoria | No registry consent form applies. Whether a paper certificate of title must be produced is confirmed at lodgement | All new certificates of title electronic from 3 August 2024; paper certificates valid until next required for a conveyancing transaction | Possibly, under the first loan's terms | Priority arrangements documented between the lenders; confirm the registry instrument with the lodging conveyancer |
| Queensland | No. A mortgagor may grant a second or subsequent mortgage under the Property Law Act 2023, section 125 | Property Law Act 2023 commenced 1 August 2025, replacing the 1974 Act | No. Granting one is not a breach of the first mortgage, despite any agreement to the contrary, under section 125(3) | Instrument amending priority, registry Form 30, executed by all affected mortgagees per Titles Queensland practice |
South Australia, Western Australia, Tasmania and the territories are not shown because their registry positions were not verified against primary sources for this guide. Treat them as a question for the lodging solicitor rather than assuming any state matches another.
Does your first loan contract stop you granting a second mortgage?
In most of Australia, it can. Standard first mortgage terms commonly include a covenant against granting further encumbrances over the security without the lender's consent, and in those states granting a second mortgage without consent can be a default under the contract even though the registry will accept the dealing. That is the general position, and it is the one most published guidance states.
Queensland reversed it by statute. Section 125 of the Property Law Act 2023, in force since 1 August 2025 and headed Subsequent mortgage does not affect first mortgage, provides that a mortgagor may grant a second or subsequent mortgage over the property, and that granting it does not constitute a breach of a term of, or proviso for re-entry contained in, the first mortgage, does not occasion any forfeiture or penalty, and does not make payable or accelerate the time for payment of an amount that would not otherwise have been payable. Subsection (3) is the part that changes the answer: the section applies despite any agreement to the contrary. In Queensland, the covenant most borrowers are warned about no longer does what the warnings say.
Three limits keep that honest. It is Queensland law, and nothing in it changes the position in any other state, where the first loan's terms still govern. It addresses the granting of the mortgage, not the separate further advance and priority questions covered later in this guide. And whether a particular facility, borrower or structure falls inside it is a legal question about specific documents, which belongs with a solicitor before anything is signed, not after.
What is a deed of priority and what does it actually cap?
A deed of priority is the agreement between the two lenders that fixes how their securities rank. Its most important number is the priority cap: the amount of senior debt that stands ahead of the second mortgagee no matter what the senior later advances. Around that cap it typically deals with permitted further advances, a standstill on the second lender's enforcement, notice obligations, and sometimes a right for the second lender to take the senior out.
| Provision | What it does | Who it mainly protects | What happens without it |
|---|---|---|---|
| Priority cap | Fixes the dollar amount of senior debt that ranks ahead of the second mortgage | The second mortgagee | The second lender has no certainty about how much debt sits in front of it as the facility draws |
| Permitted further advances | Names the advances, typically the construction drawdowns, that keep priority inside the cap | Both lenders | Drawdowns made after the second mortgage is registered fall back on the statutory further advance tests covered later in this guide |
| Standstill period | Restrains the second lender from enforcing for a period while the senior responds to a default | The senior lender | Two lenders can enforce over the same asset at once, usually destroying value for both |
| Take-out rights | Lets the second lender repay the senior and step into its position | The second mortgagee | The second lender waits on the senior's timetable with no path to control the outcome |
| Enforcement notice | Requires each lender to notify the other before enforcing | Both lenders | A lender can learn of enforcement over its own security after it has begun |
The deed is the contract, and the registry instrument is separate. The registry has its own instrument for changing the order of registered mortgages, and in New South Wales that is a memorandum of postponement under section 56A of the Real Property Act 1900, read August 2026.
It must be in the approved form, it cannot be registered where another registered mortgage intervenes unless the proprietor of that intervening mortgage joins in the memorandum, and once registered the mortgages rank, under section 56A(4), as if they had been registered in the order the memorandum expresses. On a two lender construction structure, the deed and the registry instrument usually travel together.
What a particular deed actually secures, and what its cap does and does not cover, is a legal question. Have it reviewed by your own solicitor before you sign, not only the senior's.
What do you ask the first mortgagee, and who do you ask?
Ask whether its credit team will consider a deed of priority on this facility type, and at what cap. Do not ask for permission to put a second mortgage on, because that is a question the front line is trained to decline and it rarely reaches the person who can actually decide.
The distinction matters more than it sounds. Permission is a yes or no about the borrower. A deed of priority is a commercial question about the senior's own risk, it goes to credit rather than to service, and it is answered against a number. The six questions below are the ones that decide the transaction, and three of them are not for the bank at all.
| What to ask | Why it decides the deal | Who actually answers it |
|---|---|---|
| Will you consider a deed of priority on this facility type at all? | Some construction facilities are never subordinated behind, which ends the process before any cost is incurred | Credit, reached through the relationship or business banking manager who holds the file |
| What priority cap would you require? | The cap fixes how much senior debt ranks ahead, so it sets the room left for a second lender to work in | Credit, usually after an internal review rather than on the call |
| Is your first mortgage a fixed sum or an all monies mortgage? | An all monies mortgage secures whatever is owed to that lender from time to time, so the amount ranking ahead of a second lender keeps moving until a cap is agreed | Your own solicitor, reading the mortgage, then confirmed with the bank |
| Is the drawdown obligation in our facility mandatory or discretionary? | It decides whether the senior keeps priority on future drawdowns by statute or needs the second mortgagee's agreement | Your own solicitor, reading the facility document, not the bank |
| Does the first mortgage restrict further encumbrances? | Outside Queensland, granting a second mortgage without consent can be a default under the contract | Your own solicitor, reading the mortgage and the loan terms |
| Who acts for you on the deed, and who pays them? | The senior's legal cost is usually passed to the borrower and it is the real cost of the instrument | The bank's panel solicitor, once credit has agreed in principle |
Two practical notes. Ask early, in writing, and ask for the cap as a number rather than an appetite, because a deal built on an assumed cap re-trades when the real one arrives. And nothing above is a substitute for legal advice on your own documents: the two questions marked for your solicitor are questions of contract interpretation, and a broker cannot answer them for you.
How does the senior lender's construction drawdown keep its priority?
Under statute in Queensland and Victoria, a construction drawdown keeps priority over a later mortgage in only three situations. The second mortgagee agrees to it, the senior had no actual notice of the second mortgage when the advance was made, or the facility obliged the senior to make the advance.
Everything about why priority deeds exist on construction facilities follows from that short list. Start with what the drawdowns are. A construction facility is not advanced in one sum; it is drawn against progress claims in staged drawdowns as the build proceeds, which is how a development facility is actually drawn. In law, each drawdown made after the second mortgage exists is a further advance, and the question is not who registered first but whether that advance ranks ahead of the second mortgage.
Queensland codifies the test in section 126 of the Property Law Act 2023, read August 2026. A prior mortgagee may make a further advance ranking ahead of a subsequent mortgage only if the subsequent mortgagee agrees to the further advance, or the prior mortgagee has no actual notice of the subsequent mortgage when the advance is made, or the prior mortgagee is required under the terms of the mortgage, immediately before the creation of the subsequent mortgage, to make the further advance. The section preserves the senior's priority for expenses reasonably incurred in preserving the mortgaged property, and subsection (3) adds that, despite any other Act, registration of the subsequent mortgage is not of itself actual notice to the prior mortgagee.
Victoria reaches the same three limbs in older language in section 94 of the Property Law Act 1958, read August 2026: an arrangement made with the subsequent mortgagees, no notice of them at the time of the advance, or a mortgage that imposes an obligation to make such further advances. Its notice carve-out is narrower than Queensland's, protecting advances made blind of registration only where the prior mortgage was made expressly for securing a current account or other further advances, and outside further advances the right to tack is abolished. The two states answer the same question with different edges, which is exactly why the position cannot be generalised from one state to another.
| Test | Queensland, Property Law Act 2023, section 126 | Victoria, Property Law Act 1958, section 94 |
|---|---|---|
| Agreement limb | The subsequent mortgagee agrees to the further advance | An arrangement has been made to that effect with the subsequent mortgagees |
| No actual notice limb | The prior mortgagee has no actual notice of the subsequent mortgage when the advance is made | The prior mortgagee had no notice of the subsequent mortgage at the time the further advance was made |
| Obligation limb | The prior mortgagee is required under the terms of the mortgage, immediately before the creation of the subsequent mortgage, to make the further advance | The mortgage imposes an obligation to make such further advances |
| Is registration alone notice? | No. Registration of the subsequent mortgage is not of itself actual notice, under section 126(3) | Only where the prior mortgage was made expressly for securing a current account or other further advances, under section 94(2); otherwise the general right to tack is abolished by section 94(3) |
New South Wales is deliberately absent from that table. Its Real Property Act, section 36(9), provides that registered dealings rank, notwithstanding any notice, in the order of registration. That governs priority between the registered dealings themselves; it is not a further advance test, and treating the two as one rule is the most common error in the published commentary on this topic.
Now the mechanic that matters. If the facility obliges the senior to fund each drawdown, the obligation limb preserves priority by statute and the deed of priority is largely confirmatory. Most construction facilities are not written that way: drawdowns are discretionary, subject to conditions the senior tests each time. Where that is so, the obligation limb fails, and the senior needs the first limb instead, the second mortgagee's agreement. That agreement is the deed of priority. When your bank insists on one before it will keep funding, this is the reason.
Whether your facility's drawdown clause is obligatory or discretionary is a construction of contract question, and it is the hinge of everything above. That is a call for your solicitor on the actual documents, not for a broker, and nothing here says your advances, or your lender's, are safe or unsafe.
Who has to tell the first mortgagee about the second mortgage?
Someone has to, in writing, and it is usually the incoming lender's solicitor. Registering the second mortgage on title is not the same thing as telling the first mortgagee, and on a construction facility that distinction decides who ranks where.
The reason sits in the rule against tacking, which comes from Hopkinson v Rolt (1861) and still governs real property mortgages in Australia except where a statute has changed it. A first mortgagee that makes a further advance while it has no actual notice of a second mortgage keeps its priority for that advance. Once it has actual notice, its priority is generally fixed at what was owing when the notice arrived.
Two words in that carry the weight. Actual notice, not constructive: Australian authority on the point runs through Mercantile Credits Ltd v Australia and New Zealand Banking Group Ltd (1988) 48 SASR 407 and Central Mortgage Registry of Australia v Donemore Pty Ltd [1984] 2 NSWLR 128.
And in Queensland the statute says it outright, at section 126(3), that registration of the subsequent mortgage is not of itself actual notice to the prior mortgagee. The registry does not do the telling for you.
On a part-built site that is not a technicality. The senior's remaining drawdowns are the further advances in question, so whether notice was given, and when, is the difference between the rest of the construction facility ranking ahead of the second mortgage or behind it. It is also why a well-drafted deed of priority names the permitted drawdowns instead of leaving them to the notice rule.
| Step | What it is for | Who usually does it |
|---|---|---|
| Read the first mortgage | Establishes whether it is a fixed sum or an all monies mortgage, and whether it restricts further encumbrances at all | The borrower's solicitor, before anything else happens |
| Agree the deed of priority | Caps the senior debt ranking ahead and names the drawdowns that keep priority inside the cap | The two lenders' solicitors, on the senior's terms |
| Give written notice of the second mortgage | Puts the first mortgagee on actual notice, which is what the tacking rule turns on | The incoming lender's solicitor, promptly on registration |
| Register the second mortgage | Creates the registered interest and fixes its place in the order of registration | The lodging conveyancer or solicitor |
| Check the PPSR position | Deals with any general security agreement over the borrowing entity, which sits under a different regime from the land | The lenders' solicitors, alongside the land dealing |
That last row is the one people miss. Most development borrowers give the senior a general security agreement over the company as well as a mortgage over the site, and personal property is not governed by the land rules. The Personal Property Securities Act allows a security interest to secure future advances, and a lender can preserve priority for them where the security agreement provides for it, so the notice rule that governs the land does not govern the general security agreement in the same way.
One project, two priority regimes, and they do not move together.
Two further points that a solicitor should be asked about rather than assumed. Where the first mortgage is an all monies or revolving facility, commentators note that after notice the amount the senior holds in priority can move as the account is paid down, which is a reason the cap in the deed matters more than the balance on the day.
And where the facility obliges the senior to keep advancing, the position is more argued than settled: the leading Australian case on an obligation to make further advances arose on a building loan, Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293, and reputable commentators read it in opposite directions. None of this is a call a broker can make on your documents.
What does it cost to register the priority instrument, and does it differ by state?
In New South Wales it costs $166.60 excluding GST, or $182.73 including GST, and in Queensland $248.04, so yes, it differs by state. Both figures are registry fees on the schedules effective 1 July 2026, and both are modest against the size of these transactions.
In NSW the dealing is a postponement of mortgage on the NSW LRS fee schedule, the same fee as a discharge of mortgage. The inclusive figure is not exactly 1.10 times the exclusive one because the fee includes a $5.35 Torrens Assurance Fund levy that is GST free; the pair looks wrong and is right. In Queensland, an instrument amending priority is lodged under the residual any other instrument item on the Titles Queensland fee schedule, roughly 49 per cent above the NSW figure. Small money either way, but it is the fee for reordering the registered mortgages on the title, and nobody else in the field publishes it side by side.
| State | Instrument | Registry fee | GST treatment | Source and as-of |
|---|---|---|---|---|
| NSW | Memorandum of postponement of mortgage | $166.60 excluding GST, $182.73 including GST | Fee includes a $5.35 Torrens Assurance Fund levy that is GST free, so the inclusive figure is not exactly 1.10 times the exclusive figure | NSW LRS fee schedule, effective 1 July 2026 |
| Queensland | Instrument amending priority, registry Form 30 | $248.04 | Published under the residual any other instrument item on the FY2026-27 schedule | Titles Queensland registry fees, effective 1 July 2026 |
| Other states and territories | Varies. Each registry publishes its own dealing and fee | Not verified for this guide, so no figure is offered | Check the current schedule, which resets each 1 July | Confirm with the solicitor or conveyancer lodging the dealing |
Three qualifiers belong next to those numbers. The fees are per instrument lodged, not per loan, so a structure that needs more than one dealing pays more than one fee. Both schedules reset each 1 July, so check the current year before relying on a figure. And the registry fee is rarely the real cost: drafting and negotiating the deed itself is legal work, typically billed by each lender's solicitors and commonly passed to the borrower, and it varies with how hard the deed is fought. Registration mechanics belong with the conveyancer or solicitor lodging the dealing.
How long does a second mortgage behind a construction facility take to settle?
On this structure, the deed of priority usually sets the timetable, not the second mortgage itself. The lending side can move quickly once the equity position is clear; the senior's consent, credit sign-off and legal review move at the senior's pace, and that varies by lender and by how far the requested cap sits from the facility limit.
- Equity and valuation basis. The incoming lender establishes what the site is worth on an as-is basis and what sits ahead of it. Agreeing the valuation basis early avoids the most common re-trade later.
- The senior's position. The senior is approached for its consent, where the loan terms require it, and for the deed of priority. This is typically the longest lead item, so it is started before formal approval rather than after.
- Approval and documents. The second mortgage lender completes credit, and loan and security documents are issued alongside the deed.
- Registration and settlement. The dealing and any priority instrument are lodged, and funds settle. Against the negotiation ahead of it, the registry step is quick.
Preparing the file properly shortens every step. The construction loan pack covers what the senior facility side expects to see, and the wider senior context lives in our construction hub.
Second mortgage, mezzanine or preferred equity: which does the senior permit?
Seniors permit what they can see, cap and enforce around. That is why the registered second mortgage with a deed of priority is the instrument most often approved: it is visible on title and its ranking is fixed in a document the senior controls.
Mezzanine debt and preferred equity solve the same funding gap from different places in the capital stack, and the difference that matters is what each one is, not what it is called.
| Instrument | How it is documented | What the senior has to agree to | Where it sits on enforcement |
|---|---|---|---|
| Registered second mortgage | A mortgage registered on the title behind the first | A deed of priority in most cases, and consent where the first loan's terms require it | Second in the proceeds of the security, after the senior's debt and costs |
| Mezzanine debt | Loan and security documents negotiated deal by deal, sometimes secured on title, sometimes at shareholding level | An intercreditor or priority arrangement, usually on the senior's terms | Behind the senior, and where exactly depends on the security actually taken |
| Preferred equity | Shares issued under the company's constitution, with preference rights set under the Corporations Act | Usually nothing on title; the senior's position turns on its facility covenants | It is equity, not security, so it takes no place in the priority order and ranks behind all creditors |
The row that surprises people is the last one. Preferred equity is equity, not security: it takes no place in the priority order on title, and in an insolvent liquidation shareholders are paid only after all creditors are paid in full, as ASIC's insolvency guidance for investors and shareholders, read August 2026, states. That is why a senior will sometimes tolerate preferred equity it would never allow as registered debt, and why the investor holding it carries a different risk altogether.
A caveat backed loan is different again, an unregistered interest protected by caveat rather than a registered mortgage, and its position ranking behind a construction loan is its own topic.
This section is an orientation, not the full treatment. For mezzanine structure, pricing logic and documentation, the mezzanine finance guide owns the detail.
What gets a second mortgage behind a construction facility declined?
Three things, and none of them is price. The first mortgage terms were never read, the senior will not do a priority deed on that facility type, or the numbers only work on an on-completion basis that no incoming lender will lend against mid-build.
All three are visible before anyone orders a valuation. The table below sets the fundable version of each factor against the version that stalls a file.
| Factor | What a fundable file shows | What stalls a file |
|---|---|---|
| Timing with the senior | The senior approached before the term sheet, not after | The senior asked to sign a deed once settlement is already booked |
| Valuation basis | An as-is basis every party accepts | On-completion numbers doing as-is work |
| Priority cap | A cap the senior has already indicated it will wear | A cap request that leaves nothing workable behind it |
| Exit | An exit that does not depend on the senior's sale | The same sale the senior is already relying on, so both lenders ride one event |
| Cost to complete | A clear, costed picture of the remaining build | A shortfall still moving while the application is running |
| Term | A second mortgage term that outlasts the build | A term that ends before the build does |
From our broking, indicative
From the files we have placed, and the ones we could not, two patterns sit behind almost every decline and neither appears in the table above, because both happen before an application exists.
- The first mortgage terms prohibit further encumbrance and nobody read them before the second was arranged
- The senior will not sign a deed of priority at all on that facility type, which is a policy answer no borrower can argue with
Qualitative observations from deals we have placed, indicative only, not a quote or an offer. Whether a second mortgage can be arranged, and on what terms, depends on lender policy and your circumstances at the time of application. Not financial advice.
None of these is a reason not to try; they are reasons to sequence the file properly. Read the first loan's terms first, approach the senior early, test the as-is equity before paying for anything else, and keep the layering simple, because layered property security multiplies every one of these questions. Where this commonly lands, when it lands well, is a deal the senior barely notices because the questions it would have asked were answered before they were put.
What happens to the second mortgagee if the project stalls or the senior enforces?
If the senior enforces and the site is sold, the order of payment is fixed by statute, not negotiated at the time. In New South Wales the Real Property Act 1900 sets it out at section 58(3), read August 2026: the expenses occasioned by the sale, then the money then due or owing to the selling mortgagee, then subsequent mortgages and charges in the order of their priority, and the surplus, if any, to the borrower.
A second mortgage is paid at the third step, and only if anything is left. If the sale clears less than the senior's position, the second mortgagee recovers nothing from the security, which is the risk its pricing reflects. Where the money lands within that order on a given title is exactly what the security position on title determines.
| Order | What it covers | What it means for the second mortgagee |
|---|---|---|
| First | The expenses occasioned by the sale | Comes out before any debt is repaid, so a slow or contested enforcement erodes what is left |
| Second | The money then due or owing to the selling mortgagee | This is the line that matters most, because whether completion spend on a part-built site falls inside it is the contested question |
| Third | Subsequent mortgages and charges, in the order of their priority | Where a second mortgage is actually paid, and only from what survives the first two steps |
| Last | The surplus, if any, to the borrower | Nothing reaches the borrower until every registered interest ahead of them is satisfied |
Two limits on that table. It states the position for Torrens land in New South Wales under section 58(3). Old system land there runs on a different provision, section 112(4) of the Conveyancing Act 1919, which orders the costs of sale and then the money due under the mortgage but does not name subsequent mortgagees at all, leaving the residue to the person entitled to the property.
Queensland's equivalent is section 118 of the Property Law Act 2023, headed Application of proceeds of sale, in part 8 of that Act. Other states publish their own provisions and they were not verified for this guide.
One risk on a construction file rarely gets stated: the senior may not simply sell. A first mortgagee in possession can elect to finish the build, and what it spends doing so is not automatically behind the second mortgage. The fight is over whether that spend sits inside the second step above, the money then due or owing to the selling mortgagee.
Queensland's further advance provision expressly preserves the senior's priority for expenses reasonably incurred in preserving the mortgaged property, and the Supreme Court of Queensland examined how a deed of priority interacts with a first mortgagee completing a staged development in JSY Securities Pty Ltd v Dakabin Homes Pty Ltd [2026] QSC 106.
Whether completion spend on a particular site would rank ahead, and whether a given deed is drafted to stop it, is a solicitor's question on the documents.
The deed of priority matters most here. Its standstill restrains the second lender while the senior responds to a default, its notice provisions mean neither lender learns of enforcement after the fact, and a take-out right can let the second lender repay the senior and control the outcome instead of waiting on it. In Queensland, the enforcement powers of a registered mortgagee sit under part 8 of the Property Law Act 2023, picked up by the Land Title Act 1994; what those powers allow on your facts is a solicitor's question, and this guide does not walk through them.
A stalled project is not the same as an enforcing senior. If the senior has actually withdrawn mid-build, that is a different and more urgent situation, covered in the guide to a construction funder withdrawing mid build. For the wider map of how security positions interact across the estate, start at the property lending hub.
What happens at practical completion when the facility is refinanced?
At practical completion the structure unwinds in one settlement, or it does not unwind cleanly at all. The senior construction facility is taken out by the sale or by an end facility, the second mortgage is repaid or refinanced in the same transaction, and both discharges and any new mortgage are lodged together. Sequencing is the whole game: the incoming lender needs clear title, the outgoing lenders each need their payout figures honoured, and the deed's take-out provisions can shape who must be repaid first.
Three practical points. First, plan the exit when the second mortgage is put on, not at completion; a mid build refinance is harder than an end one, and the take-out path is part of the original credit decision.
Second, where the senior is refinanced to a term lender and the second stays on title, a fresh priority arrangement is usually needed with the incoming senior, so the negotiation from earlier in this guide runs again; how a senior takeout against a bank refinance is structured is its own topic.
Third, if completed stock will be held past the facility rather than sold, that is residual stock territory, which this guide deliberately does not cover. Where the second is being repaid from a new facility, the second mortgage loans page covers what an exit-ready structure looks like.
Discharge and refinance sequencing at settlement is run by the solicitors acting on it. Get yours involved before payout figures are requested, not after.
A second mortgage behind a construction facility is a priority problem before it is a lending problem. The registry will usually take the dealing: NSW removed its consent requirement in October 2021, and Queensland went further from August 2025 by protecting the grant itself by statute. What decides the deal is everything around that: whether the first loan's terms restrict further encumbrances in your state, whether the senior's drawdowns are obliged or discretionary under the further advance rules, what cap the deed of priority sets, and what the exit at practical completion looks like. Each of those is knowable before you commit, and the cheapest time to answer them is before the valuation is ordered.
Key takeaway: the senior rarely stops a second mortgage at the registry; deals are won or lost in the first loan's terms and the deed of priority, so read the first and start the second early.Frequently Asked Questions
In most states, yes, because the first loan's terms usually require it, even though the land registry does not. Queensland is the exception: since 1 August 2025 a mortgagor may grant a second mortgage and doing so is not a breach of the first mortgage, despite any agreement to the contrary. Everywhere else, granting one quietly can be a default under the contract, so first mortgagee consent is read from the loan document, not assumed.
A bank cannot generally block a second mortgage from being registered, and in NSW it has not been able to since October 2021. What it can do is decline to sign a deed of priority, and because most lenders funding behind a construction facility will not settle without one, a refusal there stops the deal in practice. The mechanics of bank consent and deeds of priority are covered in our earlier guide.
Position and price. A second mortgage stands behind the senior debt in the proceeds of any sale, so it recovers only after the first lender's debt and costs, and it is priced for that risk, above first mortgage debt. It also adds a party to every later decision: refinances, extensions and discharges all need the second lender at the table, which is why exit planning belongs at the start.
No. Since 1 August 2025, section 125 of the Property Law Act 2023 (Qld) provides that a mortgagor may grant a second or subsequent mortgage, that doing so is not a breach of the registered mortgage ahead of it, occasions no forfeiture or penalty and accelerates nothing, and that this applies despite any agreement to the contrary. It is Queensland law only; in other states the loan terms still govern, and whether your facility is caught is a question for a solicitor.
The borrower usually does, on both sides. Each lender instructs its own solicitors to negotiate the deed and both sets of costs are commonly passed through under the loan terms, which is why the legal bill, not the registry fee, is the real cost of negotiating the priority deed. The registry lodgement itself is a published fee in the low hundreds of dollars, and it is the smallest number in the transaction.
Not by itself, but it adds a party to the settlement. The second mortgage is either repaid and discharged in the same transaction as the senior takeout, or it stays on title and a fresh priority arrangement is agreed with the incoming senior lender, as a senior takeout against a bank refinance shows. Either path is workable when it is planned at the start, and both are harder to arrange once payout figures have already been requested.
It depends on the state. In NSW a postponement of mortgage costs $166.60 excluding GST, or $182.73 including GST, on the schedule effective 1 July 2026. In Queensland an instrument amending priority is lodged at $248.04 under the residual any other instrument item on the FY2026-27 schedule. Fees are per instrument lodged, reset each 1 July, and sit alongside the larger legal cost of negotiating the deed over the security itself.
Yes, where the site holds equity above the senior facility on an as-is basis and the senior's position can be documented, usually through a deed of priority. Lenders offering second mortgage loans for construction look at the as-is valuation, the senior's payout and cap, the remaining cost to complete, and an exit that does not depend solely on the sale the senior is already relying on.
There is no standard answer, because the timetable belongs to the senior lender's credit and legal teams rather than to the borrower. The main drivers are how far the requested priority cap sits from the facility limit, whether the construction facility is a type the senior will subordinate behind at all, and how quickly title and payout information moves. It is usually the longest lead item in the transaction, so it is started early; the registry lodgement at the end is quick by comparison.
Yes, and it is the first thing to check. A fixed sum mortgage secures a stated amount, so the room above it is knowable. An all monies mortgage secures whatever the borrower owes that lender from time to time, which makes the senior debt ranking ahead of a second mortgage a moving figure until a deed of priority caps it. Which one you have is read from the mortgage, not assumed.
The funding problem becomes a contract problem first. Construction facilities typically treat an insolvency event, or the termination of a critical project document, as an event of default, so the senior's position can change before any new money is discussed. A replacement builder and a fresh cost to complete are what an incoming lender will want to see. If the senior has already withdrawn rather than paused, the guide to a construction funder withdrawing mid build covers that path.
The sale proceeds follow an order set by statute. In New South Wales, section 58(3) of the Real Property Act 1900 pays the expenses of the sale, then what is owing to the selling mortgagee, then subsequent mortgages in order of priority, then any surplus to the borrower. If the sale clears less than the senior's position, the second mortgagee recovers nothing from the property itself. Where each lender sits on a given title, and what that order means in an enforcement, is covered in our guide to security positions on title.
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