Land tax or council rates owing: can you still get a second mortgage?

Owing land tax or council rates doesn’t stop you borrowing against a property. It changes the order of claims on it. Before any lender works out how much it can advance, it has to account for the debts that sit ahead of its mortgage, and land tax sits ahead of everyone’s.

This guide sets out that order, how lenders find the arrears, the formula they use to size the loan around them, and how settlement clears them. It’s written for business owners whose land tax or rates bill has fallen behind on an investment property, business premises or land held in a trust or company.

Where do land tax and rates rank against your mortgages?

Most owners picture their property’s debts in two layers: the first mortgage, then a second mortgage behind it. With unpaid land tax there are three, and the new one goes on top.

Rank	Claim	How it gets there
1	Unpaid land tax, plus interest and penalties	By statute, whether or not it appears on the title
2	First registered mortgage	Registered first in time
3	Second registered mortgage	Registered behind the first, with consent where required

The revenue offices say it directly. Revenue NSW: unpaid land tax “is a first charge on land and takes priority over all other liabilities attached to a property”. Queensland’s revenue office says the charge “has priority over any mortgage on the land and will continue as a charge even if the land is transferred”. Victoria’s State Revenue Office notes that unpaid land tax, including vacant residential land tax, interest and penalty tax, is a first charge on the land.

Overdue council rates are also secured against the land, and councils have their own last-resort power of sale. Our page on second mortgage priority and registration explains how ranking between the registered mortgages works. This guide adds the layer above them.

Why doesn’t the title search show it?

This is the trap. Queensland’s revenue office describes unpaid land tax as a first charge “which may or may not be registered on the title”. A clean title search tells you about mortgages, caveats and registered dealings. It doesn’t prove there is no land tax owing.

So lenders, and their solicitors, order separate searches:

• Land tax clearance certificate. Issued by the state revenue office. It shows whether land tax is unpaid on the land. In Victoria, mortgagees are among those who can apply. In Queensland, the revenue office notes that a clearance search “will generally be required by your mortgagee”.
• Council rates search or certificate. Shows the rates balance owing on the property.
• Water and other statutory searches. Depending on the state and the lender.

The results land on the lender’s desk a day or two into the file. If the amounts are a surprise, the loan shrinks or the file pauses. If they were on your enquiry from the start, nothing changes.

How does a lender size the loan around arrears?

A second-mortgage lender lends up to a maximum combined LVR: the first mortgage plus the second, divided by the value. Statutory arrears rank ahead of both, so they come off the top. The working formula:

Lendable amount = (value × maximum combined LVR) − first mortgage balance − statutory arrears

There are two ways to apply it, and lenders use both.

1. Pay out at settlement. The arrears are added to the loan and paid directly to the revenue office and the council. The charge disappears, and your business receives the loan amount less the arrears.
2. Leave in place and deduct. Less common. A current payment plan stays running, and the lender subtracts the outstanding balance from what it will advance as a buffer against the charge.

Either way, the arrears reduce the cash your business receives. Our combined LVR page explains the ratio in full, and the equity and LVR calculator lets you test your own numbers. Treat the arrears as part of the existing debt when you enter them.

Illustrative example: a Newcastle investment property

The numbers below are round and illustrative only.

A business owner holds an investment house in Newcastle in their own name. They need $180,000 for stock and a new van deposit. The house has fallen behind on land tax and on council rates.

Item	Amount
Estimated value	$1,400,000
First mortgage balance	$600,000
Land tax arrears (incl. interest)	$14,000
Council rates arrears	$3,000
Business funds needed	$180,000

Structure: pay the arrears at settlement. Second mortgage of $197,000 (costs ignored here for simplicity). $17,000 goes to Revenue NSW and the council on the settlement statement, and $180,000 goes to the business.

Combined LVR: ($600,000 + $197,000) ÷ $1,400,000 = 56.9%. That’s inside the residential “comfortable” planning band of 65% or below that we use sitewide (a planning band, not lender policy).

Headroom check. At 65%: $1,400,000 × 0.65 = $910,000. Less the first mortgage leaves $310,000. Less $17,000 of arrears leaves $293,000 the business could draw before leaving the comfortable band.

The arrears cost $17,000 of headroom, dollar for dollar. In this case that doesn’t matter. On a property already near 75%, it might decide whether the deal works.

If your own numbers are close to a band edge, a short enquiry gets a specialist to run them with the arrears included, before anything is ordered.

What if you’re already on a payment plan?

Payment plans are common, and they change the conversation without removing the charge.

• NSW. Revenue NSW issued 2026 assessment notices from 19 January 2026 and offers an interest-free plan of up to nine months. A plan taken at the start of the year runs out around now, so some owners are looking at final instalments this month.
• Victoria. The SRO says you may be eligible for a payment plan of up to 12 months for overdue amounts, with interest still running on late amounts.
• Queensland. Arrangements are made with the Queensland Revenue Office, and the first charge stays in place until the debt is cleared.

From a second lender’s point of view, a plan that’s up to date is a known number with a schedule. Some will leave it running and deduct the balance. Many will still want it paid at settlement, because until the last instalment the revenue office ranks ahead of their mortgage. Have the plan confirmation and the latest statement ready, and the decision takes minutes.

Can the revenue office or council go to your first lender?

Yes, and this is why arrears matter beyond the second mortgage.

Victoria’s SRO lists “issuing a default demand to your mortgagee” among its recovery steps. It “can require your lender to pay the debt and you may be charged a fee”. It can also place a statutory charge against the property. A first lender that pays your land tax on demand will usually add it to your loan and look harder at your account. That can make first mortgagee consent for a second mortgage slower to get.

Councils move more slowly but reach further. In NSW, section 713 of the Local Government Act 1993 lets a council sell land, other than vacant land, once rates have been unpaid for more than five years. In Queensland, Sunshine Coast Council, for example, describes recovery on properties “more than three years in arrears”. Shorter periods apply in some cases, and mortgagees are notified. These are rare, last-resort steps, but they show why every lender treats rates arrears as a claim on its security.

Which properties does this usually involve?

Most states exempt your principal place of residence, so land tax arrears rarely involve the family home. They usually show up on:

• Investment property. The most common case. See investment property as second-mortgage security.
• Business premises you own personally or through a related entity.
• Property in a trust or company. Thresholds and surcharges often work differently for trusts. See property held in a trust or company.
• Mixed-use or vacant land. In Victoria, vacant residential land tax is part of the same first charge.

One change to note in NSW: from the 2026 tax year, the residence exemption no longer applies if the people living in the property together own less than 25% of it. Owners in shared or family arrangements have received assessments they didn’t expect.

When is borrowing the wrong answer?

Clearing a statutory charge with a second mortgage swaps one debt for another. It makes sense when:

• the arrears are a one-off, such as an exemption lost, a surcharge or a timing problem, and not a sign that the property doesn’t pay its way;
• the same loan funds something productive for the business, so the arrears are a small line on a larger settlement statement;
• there’s a clear exit: a refinance once the account is clean, a sale, or a known cash inflow. Use the calculator’s exit-plan selector to test it.

If land tax on the property will keep falling behind every year, the better question may be whether to keep the property at all. Our guide on whether to sell or borrow against a property runs both paths side by side. And if the land tax sits alongside an ATO debt, see how a second mortgage for ATO debt pays both off at one settlement.

What should you gather before you enquire?

1. The latest land tax assessment notice for each property, and any overdue or interest notices.
2. Any payment plan confirmation and the current balance.
3. The latest council rates notice showing arrears.
4. Your first mortgage statement (balance and limit).
5. A title search if you haven’t ordered one this year.

With these, a lender can predict what its clearance and rates searches will show, and there’s nothing new to find. The full list is on our documents checklist.

Arrears on the property? Let’s see what the equity still covers

Land tax and rates arrears are among the most common items on a property-secured settlement statement, and among the easiest to deal with. That’s true as long as they’re on the table at the start. What sets the outcome is the arithmetic above: value, first mortgage, arrears, and the amount your business needs.

The enquiry takes about 60 seconds, and there’s no credit check when you first enquire. Your details go to one specialist, not out to a pile of lenders, so there’s no spray and pray and no flood of calls. A real person reads your enquiry, works out where the arrears sit in your numbers, and calls you to talk through the structure. Please fill in the form accurately: the property value, what’s owed on the first mortgage, the land tax and rates outstanding, and every owner on the title. That way the first figure we discuss is the one that settles.

See what my equity covers after the arrears →