First-mortgagee consent: how to get a bank to allow a second mortgage

Every registered second mortgage has the same gating item: the lender holding the first mortgage has to agree to it in writing. Borrowers are often surprised that a bank gets a say over money it is not lending. It does, and understanding why — and what the bank is actually checking — is the difference between a second mortgage that settles in a fortnight and one that stalls for a month.

Why consent is required

Standard mortgage terms, including every major bank's, prohibit the borrower from granting a further mortgage or encumbrance over the security without the mortgagee's consent. The land registry will not register a second mortgage over a title that already carries a first unless the first mortgagee has signed off, and a private lender will not advance funds against an unregistered interest. So the consent is not a courtesy; it is a condition of the second mortgage existing at all.

The first mortgagee cares because a second mortgage changes its position. The property is now carrying more debt, the borrower has another creditor with rights over the same asset, and if things go wrong there is a second party at the table. Consent is how the first lender satisfies itself that none of that threatens its own loan.

What the first mortgagee looks at

• —Combined loan-to-value ratio. The first and second added together, against the first lender's view of value. Most banks will not consent beyond their own policy ceiling, which is one reason private seconds are typically kept to around 75% combined.
• —Conduct on the existing loan. Arrears, missed covenants or a facility already in review make consent unlikely.
• —The purpose of the new money. Business purpose, clearly stated, is far easier to approve than an unexplained equity release. A one-paragraph summary of what the funds are for goes a long way.
• —Who the second lender is. Banks are more comfortable consenting to a registered mortgage from an established non-bank lender than to an unfamiliar party.
• —Whether a deed of priority is needed. Some first mortgagees require a priority deed that caps the amount they rank ahead for, or that regulates how the two lenders deal with enforcement. Their solicitors draft it; the second lender's solicitors review it.

Banks versus non-bank firsts

Major banks run consent through a dedicated team with a standard form, a fee and a queue. The process is predictable but not fast, and it does not accelerate because the borrower is in a hurry. Non-bank first mortgagees vary: some turn a consent around in days with a short letter, others treat it as a credit event and re-assess the whole file. Knowing which kind of first sits on the title is one of the first things we check, because it sets the realistic timeline for the deal.

How long it takes

Consent is usually the rate-limiting step on a second mortgage. Everything else — the private lender's credit assessment, valuation and documentation — can run in 5–10 business days for a clean file. If the consent request goes in only after indicative terms are accepted, the deal waits on the bank. If it goes in on day one, it runs in parallel with everything else and is often back before the loan documents are ready to sign.

Running consent in parallel

This is what we do on every second mortgage we arrange:

• —Identify the first mortgagee and its consent process from the title search and the borrower's loan documents before the deal goes to a funder.
• —Draft the consent request with the borrower: entity details, the proposed second lender, amount and term, combined LVR against a stated valuation, and the business purpose. We can prepare the request letter if the borrower prefers.
• —Lodge the request with the first mortgagee the day indicative terms are issued, not after they are accepted.
• —Brief the private lender's solicitors so any deed of priority is drafted and negotiated while the valuation is under way.
• —Chase. Consent requests sit in queues; a weekly follow-up with a reference number keeps them moving.

When the first mortgagee says no

There are three honest options, and one we do not offer:

• —Reduce the ask. A smaller second that keeps the combined LVR inside the bank's comfort zone is sometimes approved where the original amount was not.
• —Refinance the first. A private first mortgage large enough to pay out the bank and release the additional capital removes the need for consent altogether. It costs more than keeping a cheap bank first, but it is certain and it is fast.
• —Secure against a different property. If the entity holds other real estate, a first mortgage over that asset may be simpler than a second over this one.
• —A caveat loan is the option other lenders will offer in this situation: an unregistered caveat lodged without consent. We do not arrange caveat-only loans, for the reasons set out in our comparison of second mortgages and caveat loans.

An illustrative example

A Pty Ltd trading entity owns a commercial unit valued around $2.4m with a major-bank first of about $1.1m. It needs roughly $500k to settle the acquisition of a competitor's customer book. Combined LVR on the proposed second is about 67%, the bank loan has a clean payment history, and the purpose is plainly business. The consent request goes to the bank on the same day the private lender issues indicative terms. The valuation comes back within the week, the bank consents with a short priority deed inside a fortnight, and the second settles two days after the deed is signed. Had the consent waited for the loan documents, the same deal would have taken three weeks longer.

Checklist before you ask

• —A current title search showing exactly who holds the first mortgage.
• —The first loan's balance, limit and recent statements.
• —A realistic value for the property and the combined LVR it implies.
• —A written one-paragraph business purpose for the new funds.
• —The exit for the second: how and when it will be repaid.

With those in hand, consent stops being the unknown in a second mortgage and becomes a step we run alongside the rest of the deal. Start an enquiry and we will tell you how the first mortgagee on your title is likely to respond.