Some overseas borrowers are being offered the opportunity to obtain a second mortgage and purchase an Australian property, without necessarily having a deposit. For example, the second-largest insurance company in China offers loans to Chinese investors for Australian residential property. The Chinese borrowers use the second mortgage as a deposit for an off the plan apartment, with the expectation that a senior loan will later be obtained from an Australian bank to pay the final 70% when the apartment is completed.

Explain why this is a potential financial risk for all involved.

(Explain different pre-settlement conditions required by lenders, including gaining consent of prior mortgagee, if second mortgage security is being taken).