Vendor finance

Vendor finance is an arrangement where the seller of a property lends the purchaser some or all of the purchase price, rather than the buyer obtaining the full amount from a bank.

How it is used

Typically where a buyer cannot obtain full bank funding. The vendor may take a second mortgage behind the bank's first, or may finance the whole purchase with the title transferring on completion of payments.

It appears more often in commercial property and in difficult markets, and is sometimes promoted as a strategy for buyers with limited deposit.

The risks — for buyers

• Interest rates are usually well above bank rates.
• Terms are often short with a large balloon payment, requiring refinancing on a fixed date, with no guarantee a bank will refinance you then.
• Where title does not transfer until payments complete, you may have limited protection if the vendor becomes insolvent or defaults on their own mortgage.
• Consequences of missing a payment can be severe and swift.

The risks — for vendors

You become a lender, with the credit risk that entails. Recovering the property from a defaulting purchaser is slow and expensive.

The regulatory position

Vendor finance to a consumer for residential property is likely to be a consumer credit contract under the CCCFA 2003, bringing disclosure obligations, responsible lending obligations, and potentially requiring registration on the Financial Service Providers Register.

Non-compliance carries real consequences, including the possibility of the lender being unable to enforce or recover costs of borrowing.

Common misunderstanding

It is promoted in property education as a creative strategy far more often than it is used well. The structures are complex, the regulation is real, and the downside for an inexperienced party on either side is severe.

Do not enter a vendor finance arrangement without a lawyer who has done them before. This is not a place for a general conveyancer or a template.

Related terms

Sources

• Credit Contracts and Consumer Finance Act 2003

Last reviewed: 1 August 2026 · General information only, not legal or financial advice.

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