Vendor finance on property: terms contract or vendor mortgage, how a bank treats the seller's carry, and how business buyers refinance out.
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Vendor Finance · Property · Refinance Out
What actually happens between the day a seller agrees to carry part of the price on a property and the day a mainstream lender pays that seller out? This walks the deal in order, from the contract form to the refinance.
Quick Answer
Vendor finance on a property means the seller lets you pay part of the price over time, either under a terms contract where the seller keeps title until you finish paying, or by settling with a mortgage back to the seller behind any bank loan. Both are forms of vendor finance, but only the second is one most lenders can lend beside, and the deal works best when the buyer plans the refinance before signing. See how we structure seller terms on our vendor finance page.
Also called: seller finance, vendor terms, owner finance. Same arrangement under different names; terms contracts and instalment contracts are two of its legal forms, not synonyms, and the second section explains the difference.
What is vendor finance on a property purchase?
Vendor finance on a property purchase is an arrangement where the seller agrees to be paid part of the price later, so the buyer needs less from a lender or from their own cash at the start. It comes in two legal forms: a contract where the buyer pays by instalments and the seller keeps the title until the end, or a normal settlement where the buyer takes title and gives the seller a mortgage over the property for the unpaid balance.
This insight covers commercial premises, land and investment property bought by a self-employed business owner: business purpose premises, not a home. The seller usually owns the freehold outright or close to it, which is what lets them wait for part of their money. More ways to structure a property purchase sit in the Property Lending Hub.
Vendor finance on a business sale, where the seller carries part of the goodwill price, is a different deal with different security. The vendor finance guide and how vendor finance works cover that case, and buyers taking on a business and its premises together should read buying a business with vendor finance first. On property, the seller's security is the land itself, which is why the order of events matters more than the headline terms.
Terms contract or vendor mortgage: who holds title until you finish paying?
Under a terms or instalment contract the seller holds title until the final payment, while under a vendor mortgage the buyer holds title from settlement and the seller holds a mortgage over it. That one difference decides who carries the risk. A terms contract keeps the title with the seller, so the buyer is exposed if the seller's own lender, creditors or circumstances change before the transfer. Each state adds its own protections for buyers here, which is why the contract form is a question for a solicitor.
When you settle with a mortgage back to the seller, the transfer happens at settlement, the buyer is registered on title, and the seller's balance is secured by a second mortgage if a lender funds in first place, or a first mortgage if no lender is involved. Lenders and valuers can read that structure. Most cannot lend beside a contract where the buyer does not yet own the property.
| Question | Terms or instalment contract | Settle with a vendor mortgage |
|---|---|---|
| Who holds title during the term | The seller, until the final instalment is paid | The buyer, from settlement |
| What the seller can do on default | Usually terminate under the contract, subject to the state's notice rules and buyer protections | Enforce the mortgage like any mortgagee, behind any first mortgage |
| Whether a lender can fund beside it | Rarely, because the buyer has no registered interest to mortgage | Commonly, with the seller's mortgage ranking second, varies by lender |
| Transfer duty timing | Can fall at contract or on possession, varies by state, check with your accountant | Usually at settlement, varies by state, check with your accountant |
| How the buyer refinances out | Pays the balance, completes the transfer and mortgages the property at the same settlement | Refinances the first loan and the seller's mortgage into one new facility |
Settle with a vendor mortgage
- Buyer is on title from settlement
- A lender can fund first, with consent
- The seller's balance is registered and can be discharged
- The refinance is one new loan
Terms contract
- Title stays with the seller for the whole term
- Lenders rarely fund beside it
- The seller's own mortgage can stay on title
- The transfer has to complete before the refinance can
What do the state rules say about vendor terms on property?
The state rules on vendor terms differ, and the safe reading is that every state regulates instalment contracts over land in some way. In Victoria, vendor finance is not banned outright, but the Sale of Land Act 1962 prohibits terms contracts for residential land (other than agricultural land) below a prescribed sale price, and restricts rent-to-buy arrangements on residential land. A vendor mortgage, or vendor terms on business premises, sits outside that prohibition; is vendor finance legal in Victoria explains where the claim that it is illegal comes from. In Queensland, the Property Law Act 2023 commenced on 1 August 2025, at the time of writing, and changed the rules for instalment contracts, so any Queensland terms deal needs a solicitor's read against the current act. New South Wales and the other states have their own conveyancing and sale of land rules that limit what a seller can do under an instalment contract, including notice periods before termination.
Where this commonly lands for business buyers is the vendor mortgage, because settling with a registered mortgage avoids most of the instalment contract rules and it is the form a lender can fund beside. None of this is legal advice: the contract form and the state law that governs it are your solicitor's call.
When is vendor finance on property regulated credit?
Vendor finance on property is regulated credit when it falls inside the National Credit Code, and credit for business purpose premises usually falls outside it. ASIC's National Credit Code page describes the Code, at the time of writing, as applying to credit provided to individuals or strata corporations wholly or predominantly for personal, domestic or household purposes, or to purchase, renovate or improve residential property for investment purposes. A seller carrying part of the price of a warehouse, shop or factory bought for a trading business sits outside that description. A seller carrying part of the price of a residential investment property bought by an individual may sit inside it.
The line matters for both sides. A seller who provides regulated credit may need a credit licence and must follow the Code's disclosure and hardship rules, and a buyer under a regulated contract has protections an unregulated buyer does not. Lenders refinancing out also ask which side of the line the original deal sat on. Whether a seller needs a licence for a particular deal is a question for a solicitor, not a broker.
How does a bank or non-bank lender treat a vendor carry behind it?
A bank or non-bank lender will often fund in first place with a vendor carry behind it, but only on its own terms. The lender has to consent to the second mortgage, and the carry usually sits behind the bank under a deed of priority, on terms that vary by lender, which fixes how much of the property's value each side can claim and in what order. The lender also counts the seller's balance when it reads total debt against value, so the loan to value ratio it works to includes both loans, not just its own.
The first lender is often a non-bank lender, because many major banks decline a second mortgage behind their loan or ask for the seller's balance to be interest only, subordinated and without enforcement rights until the bank is paid. Sellers should expect the first lender to read their mortgage terms before it approves. The documents a first lender asks the seller for are listed in the vendor carry consent pack; it is written for a venue sale, and most of the list carries over to property.
Who pays duty, GST and land tax when the seller carries part of the price?
Who pays transfer duty, GST and land tax on a vendor financed property depends on the contract form and the state, not on the vendor finance itself. Duty may be assessed at contract, on possession or at settlement, depending on the form and the state. GST turns on what is being sold and between whom, for example whether commercial premises are sold with a tenant as a going concern. Land tax usually follows whoever the state treats as owner during the term, which under an instalment contract can be either party.
Each of these is a question for your accountant before you sign. A seller who keeps title under an instalment contract can still receive the land tax assessment while the buyer has agreed to pay it, and the contract has to say who bears it. The business sale version of the tax questions sits in the vendor finance guide.
How do you refinance a vendor financed property to a mainstream lender?
You refinance a vendor financed property by showing a mainstream lender a clean repayment history, a current valuation and enough equity to pay the seller out in one new loan. The refinance out is the plan from day one, because vendor terms are usually short and the seller's balance often falls due in a lump sum at the end. Lenders typically look for several months of repayments on the carry, varying by lender, before they treat the purchase as settled in and lend on a fresh valuation rather than the original price.
- Keep the records. Bank statements showing every payment to the seller, on time, from the first month.
- Order a valuation early. If the value has risen, the equity can absorb the seller's balance; if it has not, the gap is yours to fund.
- Get a payout figure from the seller. In writing, including interest to the payout date.
- Choose the lender. A commercial property loan for business premises; other lenders suit land or residential investment.
- Settle on one date. The new lender pays the seller, the seller's mortgage is discharged, and under an instalment contract the transfer completes at the same settlement.
The broker's work in a refinancing like this is sequencing: lining up the payout, the discharge and the new mortgage so nothing is left unsecured for a day. Check eligibility while the vendor term still has time to run, not after it has fallen due.
What goes wrong in property vendor finance deals?
Property vendor finance usually goes wrong at one of four points: the buyer defaults, the seller's own lender steps in, one side's interest is not protected on title, or the property is not insured.
- Buyer default. Under an instalment contract the seller may be able to terminate and keep payments, subject to the state's rules; under a vendor mortgage the seller enforces like any mortgagee, behind the first lender.
- The seller's own mortgage. If the seller still owes their lender, that mortgage usually carries a due on sale clause, and an instalment contract that ignores it can put the whole arrangement at risk.
- Caveats and registration. A buyer under an instalment contract usually protects their interest with a caveat; a seller relying on an unregistered mortgage holds weaker security.
- Insurance. Both sides need the property insured, with each interest noted, from the day the risk passes to the buyer.
Rent to buy and lease option schemes on homes are a separate product that regulators have warned consumers about, and Victoria restricts them on residential land; they sit outside this insight. Business sale defaults are a different case again, covered in vendor finance on a venue sale.
Vendor finance on property works when both sides agree the contract form first, the lender behind the seller knows where it stands, and the buyer treats the seller's balance as temporary. A vendor mortgage is usually easier for a lender to work with than an instalment contract, business purpose premises usually sit outside the National Credit Code, and every state law, duty and tax question goes to a solicitor or accountant before contract.
Key takeaway: choose the contract form your future lender can refinance, and plan the refinance out before you sign.Frequently Asked Questions
A property bought with vendor finance can be refinanced to a mainstream lender once the buyer can show a repayment history on the seller's carry and enough equity at a current valuation. Lenders typically want several months of on-time payments, though this varies by lender, and a written payout figure from the seller. Under an instalment contract the transfer completes at the same settlement as the new loan. Our glossary entry on refinancing explains the terms lenders use.
Vendor finance can be a good idea for buying commercial property when the seller's terms bridge a gap a lender will close later, and a poor one when the buyer has no realistic refinance. It works best settled with a mortgage back to the seller, ranking as a second mortgage behind a lender that has consented. The main risk is a lump sum at the end of the vendor term that no lender will refinance.
Whether a seller needs a credit licence to offer vendor finance on property depends on whether the credit falls inside the National Credit Code. Credit for business purpose premises usually sits outside it, while credit to an individual buying residential investment property may sit inside it. The answer for a specific deal is a solicitor's call, and the Victorian rules are covered in is vendor finance legal in Victoria.
Vacant land can be bought on vendor finance, and land is one of the more common places seller terms appear because many lenders lend less against land than against built property. The refinance out is harder for the same reason, so buyers should expect a conservative valuation and lower lending against the land. Land sold by instalments is also where state instalment contract rules most often apply.
Rent to buy is not the same as vendor finance on commercial property, because under rent to buy the occupier is a tenant holding an option, not a buyer with an interest in the land. Under vendor finance the buyer either holds title from settlement or holds a contract to buy, with instalments credited to the price. Option terms vary widely, so a solicitor should read any rent to buy agreement before money changes hands.
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