How the caveat is recorded in NSW
In New South Wales, land title is kept under the Torrens system by NSW Land Registry Services (NSW LRS), under the Real Property Act 1900. A caveat is a notice lodged on the title saying someone claims an interest in the land. For a caveat loan, the lender lodges it to warn anyone dealing with the property that the lender has a claim, usually backed by a signed loan agreement and a charge over the property in the loan documents.
The caveat does not make the lender a registered mortgagee. It mainly stops other dealings, such as a sale or a new mortgage, from being registered without the lender being notified first. That is why lenders treat a caveat as a weaker form of security than a registered first or second mortgage, and why they price it accordingly.
Lodgement
The lender's lawyer usually arranges for the caveat to be lodged, and many dealings are now lodged electronically. Ask the lender's lawyer to confirm when the caveat has been recorded and to give you a copy of the title search afterwards, so you know exactly what has been registered against your property.
Lapsing notices and removing the caveat
The Registrar General's guidelines say a registered proprietor of an estate or interest in the land can apply for a lapsing notice. The applicant must serve the notice on the caveator and prove service. The caveator then has 21 days from service to apply to the Supreme Court of NSW for an order extending the caveat; otherwise it lapses. Loan agreements may also give the lender other rights, such as registering a mortgage if a payment is missed, so read them carefully.
When you repay the loan, the lender should lodge a withdrawal of caveat. Build the cost and timing of that withdrawal into your plan, especially if repayment happens on the same day as a sale or refinance settlement.
Typical scenarios in NSW
Example only, not a real client. A Sydney business owner needs funds within a fortnight to pay a tax debt. The owner holds an investment unit with an existing bank mortgage. A private lender agrees to a six-month caveat loan against the unit, with the exit being the sale of a separate property already listed.
Example only, not a real client. A Newcastle builder has a payment delay on a project and needs short-term working capital. The builder offers a caveat over their own home, which already has a bank mortgage, and repays from the progress claim when it lands.
In both examples the borrower knows exactly where the repayment money will come from. A caveat loan without a clear exit can become expensive very quickly.
Costs to compare in NSW
Caveat loans are priced for short terms and higher risk. When you compare offers, add up:
- the interest rate, and whether interest is paid monthly, prepaid or added to the loan;
- establishment, line and legal fees, including the lender's NSW lawyer;
- costs to lodge and later withdraw the caveat;
- default interest and any fee for repaying early or late.
Put each offer into the loan cost estimator to see the total dollar cost over the term, not just the headline rate.
Duty, land tax and the existing mortgage
A caveat loan does not usually attract NSW transfer duty, because no property is being transferred. But if the loan is helping you buy property, the purchase will carry transfer duty, which Revenue NSW collects. Check the NSW stamp duty page for how that is worked out.
If the property already has a bank mortgage, read that mortgage's terms. Some prohibit further security or caveats without the bank's consent. Breaching that can create a default with your main lender, which is a much bigger problem than the short-term loan.
Sydney and regional NSW
Lenders often value Sydney and major regional centres, such as Newcastle, Wollongong and the Central Coast, differently from smaller regional towns, where sales take longer. Expect a lower loan-to-value ratio, or a firmer exit requirement, for properties outside major centres. For more on lenders in the capital, see private lenders in Sydney.
Before you sign
Have your own lawyer read the loan agreement and the caveat documents. Ask the lender what happens if your exit is delayed by a month or two, what the default rate is, and when they can register a mortgage or take steps to sell. If you are unsure whether a caveat loan suits you, compare it with a second mortgage loan, which gives the lender registered security and can cost less.