Vendor Finance When Buying or Selling Property

Vendor finance means the seller lends you part or all of the purchase price instead of a bank. It can help a buyer who cannot get a standard loan, or a seller who wants a quicker sale or a return on the sale price. It is also an area where buyers have lost money, so both sides should understand the structure before anything is signed.

Optimum Lawyers is a property law firm in Parramatta Square, led by principal solicitor Wisam Assi. We act on purchases, sales, settlements and transfers in every Australian state and territory.

Common structures

• Vendor loan with a mortgage. The sale settles, title passes to you, and the seller lends you money secured by a mortgage over the property. This gives the buyer the most protection.
• Instalment or terms contract. You pay the price in instalments and the seller keeps title until you finish paying. Several states regulate these contracts because the buyer can lose everything paid if the contract is ended.
• Rent-to-buy or lease options. You rent the property with an option to buy later. These arrangements have attracted regulator warnings, and the buyer often has the least protection.

Laws that can apply

If the seller provides credit to an individual to buy residential property for personal use, the National Consumer Credit Protection Act may apply, including licensing and responsible lending obligations. Each state also has its own rules on instalment contracts, and duty and land tax still need to be worked out. The right structure depends on who the parties are, what the property is used for and which state it is in.

What buyers should check

• When title passes to you, and what you lose if you miss a payment.
• The interest rate, fees, term and any balloon payment at the end.
• Whether the seller has a mortgage over the property, and what happens if the seller defaults on it.
• Whether you can register a caveat or other protection on the title.
• Who pays rates, insurance and repairs while you are paying the seller.

What sellers should check

• Whether credit law applies to you, and whether you need a licence.
• Security for the debt, and the steps to enforce it if the buyer stops paying.
• Your own lender's consent if the property is mortgaged.
• Tax treatment of the sale and the interest, which your accountant should review.

How we help

We review or prepare the contract, the loan agreement and the security documents, explain your position in plain terms, and act on settlement in any state. We start with a free initial contract assessment: a brief first look at whether the documents appear ready for a full paid legal review. It is not the full review.

What clients say

“Wisam was incredible from the get go. Very knowledgeable, well priced and extremely prompt”

Peter Aliferis, Google review

Questions about vendor finance

Is vendor finance legal in Australia?

Yes, but credit law and state rules on instalment contracts can apply. The structure needs to comply with both.

Who holds the title under vendor finance?

It depends on the structure. With a vendor loan and mortgage the buyer holds title. Under an instalment contract the seller usually keeps it until the price is paid.

Do I still pay stamp duty with vendor finance?

Duty is generally payable on the purchase. When it is due depends on the state and the structure.

Is rent-to-buy the same as vendor finance?

Not quite. Rent-to-buy is usually a lease with an option to buy, and the buyer often has less protection. Get advice before you sign.

Related: Contract of sale review | Caveats on property | Property lawyers