How caveats work under Victorian law
Victorian land is registered under the Transfer of Land Act 1958, and the Registrar of Titles is responsible for the register. A caveat is a notice on the title stating that someone claims an interest in the land. Victoria Legal Aid describes it as working like an injunction, stopping the owner from dealing with the property, such as transferring it or granting a new mortgage, while it stands.
For a caveat loan, the lender lodges the caveat on the strength of the loan agreement, which normally includes a charge over the property. The lender is not a registered mortgagee, so its position is weaker than under a registered first or second mortgage. That weaker position is one reason caveat loans cost more.
Electronic lodgement in Victoria
The Registrar of Titles lists caveats among the instruments it no longer accepts on paper, so they are lodged electronically. The lender's lawyer will usually lodge the caveat online. Ask for a title search after lodgement so you can see exactly what has been recorded.
Lapsing and removal
Victoria Legal Aid explains that the owner can apply to the Registrar of Titles, with a lawyer's certificate, to have a caveat removed. The Registrar then gives notice that the caveat will lapse on a date at least 30 days away, and it lapses unless the caveator advises that court proceedings have started. The owner can also apply to the Supreme Court for removal. Loan agreements may also give the lender other rights, such as registering a mortgage if you default, so read them carefully.
When you repay, the lender should withdraw the caveat. If your exit is a sale or refinance, make sure the withdrawal is ready for settlement day so the incoming buyer or lender is not delayed.
Typical scenarios in Victoria
Example only, not a real client. A Melbourne café owner needs to pay a supplier and staff while waiting on an insurance payout. The owner offers a caveat over their townhouse, which has a small bank mortgage, for a three-month term. The exit is the insurance payment.
Example only, not a real client. A Geelong investor has signed to buy a second property and needs the deposit before their own sale settles. A caveat loan over the existing property covers the deposit until the sale completes.
In each case the borrower knows where the repayment money will come from and roughly when. Without that, the cost of extensions and default interest can climb quickly.
Costs to compare in Victoria
Ask each lender for a written breakdown of:
- the interest rate and how it is paid: monthly, prepaid or capitalised;
- establishment, legal and broker fees;
- the cost of lodging and withdrawing the caveat;
- default rates and charges for extending the term.
Then put the figures into the loan cost estimator to compare the total dollar cost of each offer.
Duty, land tax and other Victorian costs
A caveat loan by itself is not a transfer of land, so land transfer duty does not generally apply to it. If the loan funds a purchase, the purchase carries land transfer duty collected by the State Revenue Office. See the Victorian stamp duty page.
Victoria also has land tax on many investment properties. Under the commercial and industrial property tax reform, a commercial or industrial property enters the new system through a qualifying transaction on or after 1 July 2024, and an annual tax then starts after a 10-year transition. If your exit depends on selling commercial or industrial property, ask your lawyer how those changes affect the buyer's costs and your sale timing.
Existing mortgages
If the property already has a bank mortgage, read its terms. Many prohibit further charges or caveats without consent. A breach can trigger a default with your bank, so ask your lawyer to check before you sign.
Melbourne and regional Victoria
Lenders usually lend a higher share of value against Melbourne and large regional centres, such as Geelong, Ballarat and Bendigo, than against smaller towns where sales take longer. For local context, see private lenders in Melbourne.
Before you sign
Get your own lawyer to read the loan agreement and caveat documents. Ask what happens if repayment is late, how default interest is calculated, and when the lender can register a mortgage or start enforcement. Compare the offer with a second mortgage loan, which gives the lender registered security and can cost less.