Second mortgages are a useful product in a thoughtful book and a fast way to cause yourself problems in a thoughtless one. We write a meaningful number of them every month. The envelope has narrowed in the last 12 months — not because we've changed our credit lens, but because the macro has changed underneath everyone in the segment.
Where we'll write behind
The cleanest second-mortgage profile for us looks like this: security is residential or commercial in a city where the first-mortgage refinance market is liquid; the senior is a major bank or a tier-two non-bank with a published servicing standard; combined LVR sits at or below 78%; the second sits on a documented exit no longer than 12 months; the borrower is a corporate entity with a sponsor who carries real personal consequences if the file discharges badly.
Inside that envelope the product behaves the way it should — it fills a gap between what the senior will fund and what the borrower needs, on a tight maturity, with the senior's consent. The pricing reflects the subordinated position. The conditions reflect the relationship with the senior.
Where we've pulled back
Three patterns we used to write that we're writing less of today. Combined LVRs above 80% on secondary-city residential — the discharge market for those securities has thinned, especially where the comparables are themselves bank-decline files. Seconds behind a non-major lender whose own discharge process is slow — the second can be perfectly sized but you're inheriting the senior's timeline at exit. Long-tenor seconds (18-month-plus) where the exit is a stabilised income that hasn't formed yet — too many ways for the formation to slip, none of them the borrower's fault.
None of these are blanket nos. They're files we'll look at, but they go to the credit committee with structuring attached. The standard envelope is genuinely the standard envelope.
What changes for the broker
Practically, two things. First, when you bring us a second, the indicative comes back faster if you've already confirmed combined LVR with the senior's most recent valuation rather than your own desktop. Second, the formal letter will reference the senior — their consent letter, their payout figure timeline, their position on simultaneous discharge. Brokers who've worked with us on seconds before know this is how it goes.
What changes for the borrower
The product still does what it should — it fills a gap in working capital, deposit release, or settlement-funded exit where the senior won't extend. The difference is that we're asking harder questions about the exit before we get to the rate. That's a structural fit question, not a pricing question, and it's the right way to write the product through the cycle.