Can you lend behind a bank when it won't release equity?

Yes - funding can sit behind a bank. A caveat loan or a registered second mortgage ranks below your bank’s first mortgage on the same property, which lets a company or trust release equity for business purposes without refinancing the senior loan or disturbing the rate on it.

What “behind a bank” actually means

When two facilities are secured against the same property, they rank in the order they sit on title. The bank’s first mortgage holds first position; a facility behind it ranks second. If the property is ever sold, the bank is repaid in full first, and the second-ranking facility is repaid from whatever equity remains. That order - not the size of the loan - is why funding behind a bank is priced above a senior bank rate: recovery is harder and the senior holds priority. The appeal for a borrower is straightforward. You raise capital against equity you already hold, without refinancing or renegotiating a first facility that may be on terms worth keeping.

When the bank will not release equity for a deposit on a second property

A common version of this question comes from an owner with plenty of equity in their home or an unencumbered investment property who has asked the bank for a top up to fund the deposit on another property and been refused. The bank is almost never saying the security is poor. It is saying the borrower does not pass its serviceability test for the larger loan, and no amount of equity changes that. Most banks also only count usable equity up to 80% of value, so even an approved top up can release less than expected.

A private lender looks at it the other way around: it lends against the property and the exit rather than against payslips or last year’s tax return. In practice the structure is:

• A second mortgage or caveat loan over the existing property funds the deposit and purchase costs. If the property is unencumbered, it is a private first mortgage instead, which is simpler because there is no bank to rank behind.
• The new purchase is financed separately, by a bank where possible, or the whole position is funded privately and refinanced later.
• Where the existing property carries a bank mortgage, a registered second mortgage may need the bank’s consent and a deed of priority, while a caveat loan generally does not. See second mortgage without bank consent and what is a deed of priority.

The purpose test. Lenders of this kind fund business and investment purposes, not consumer purposes. A deposit on an investment property, commercial premises or a development site qualifies. A deposit on a home you intend to live in does not, and signing a business purpose declaration to get around that puts both you and the lender in a difficult position.

LVR across both properties. The lender measures its loan against the property it is secured on, usually somewhere in the range of 65% to 75% depending on whether it ranks first or second, and will also want to see how the new purchase is being financed so the combined position across both properties stacks up. See what LTV can I borrow.

Cost and term. Private rates are usually quoted per month rather than per year, and the annual equivalent sits well above a bank rate. That is the price of speed and of not having to pass serviceability. Terms typically run 6 to 24 months. Interest is often capitalised or prepaid, so there are no monthly repayments while the purchase settles and the rent starts coming in. See capitalised and prepaid interest.

The exit. The lender will want a clear exit before it settles: usually a refinance of both properties into one bank loan once the rental income is counted and the serviceability picture changes, or a sale of one property. See what is an exit strategy.

A worked example

Say you own an investment property worth $900,000 with no mortgage and want to borrow $750,000 against it to buy a second property. That ask is around 83% of value, which is above where private lenders sit. At the 75% ceiling discussed below, the most the property could support is about $675,000, and a first mortgage lender will often land lower than that. The realistic paths are a smaller raise against that property, a second security to lift the total, or a smaller purchase. Going in with a realistic figure is what gets an offer rather than a decline.

Is it worth it?

The upside is that the purchase goes ahead now rather than in two or three years when the bank’s numbers change, and any existing bank loan is left untouched. The downside is cost, and the fact that the whole plan rests on the exit. If the refinance does not come off at the end of the term, the options are an extension at a cost, selling one of the properties, or a further private loan, and the lender can enforce against the security if none of those happen. Take this route only if the bank refinance is realistic on the numbers, not hoped for.

If you have an investment or commercial purchase in mind and the bank has already said no, tell us the property, the balance owing and the amount you need and we will match you with a lender that funds deposits behind a bank.

Does the bank have to agree?

It depends on the instrument and the state. For a registered second mortgage the position has shifted in recent years: in Queensland, and in New South Wales since October 2021, registration no longer legally requires the first mortgagee’s consent. In practice, though, most bank mortgages contractually prohibit the borrower from granting a further mortgage without consent, so the bank’s agreement is still usually sought. Where a bank consents, it typically does so on a short deed of priority and a modest fee, and most banks will consent on sound commercial security - though some turn it around faster than others. A caveat is different again: it can generally be lodged without the bank’s consent, which is part of why it moves quickly.

What a deed of priority does

A deed of priority - sometimes called a deed of postponement - is the agreement between the bank and the second-ranking holder that fixes the order of priority and caps the amount the bank ranks ahead for. It matters for two reasons. First, it confirms the bank’s priority is limited to a stated sum rather than an open-ended “all monies” figure, so the equity behind it is defined. Second, it protects the second-ranking facility against tacking - the rule that further advances a bank makes, before it has notice of the second facility, can rank ahead of it. For the borrower it is usually a short, standard document; for the funding sitting behind the bank, it is the difference between a clean position and an exposed one.

Caveat or second mortgage - which sits behind the bank?

Both can sit behind a bank; they trade speed against strength. A caveat is the lighter instrument - it records an interest on title without registering a mortgage, can usually be lodged without the bank’s consent, and suits shorter facilities measured in weeks to a few months. A registered second mortgage is the stronger instrument - it carries a registered mortgagee’s enforcement rights and a clearer ranking on title - but it moves at the speed of the bank’s consent and suits larger or slightly longer needs. The choice comes down to how fast you need the money, how long you need it for, and how much you are raising.

How combined LVR works behind a bank

Because both facilities are secured against the same property, the figure that matters is the combined loan-to-value ratio: the bank’s balance plus the second-ranking facility, measured against the property’s value. A second mortgage commonly reaches up to around 75% combined LVR on suitable security, subject to assessment. The headroom you have is the gap between what the bank is owed and that ceiling. If your bank loan already sits near the top of the range, there is little equity to release behind it; if it sits well below, there is room to work with.

How long it takes

A caveat-based facility can settle in days once the security and a clear exit are confirmed. A registered second mortgage typically runs a little longer - often one to two weeks - and the single biggest swing factor is how quickly the bank turns around its consent and the deed of priority. Confirming the bank’s consent posture early is the highest-leverage step in the whole process. Across both routes the constants are the same: a credible exit, an honest combined-LVR position, and security the funding can rank against.