Recourse Loans Australia 2025: Key Risks and Borrower Protections

Recourse loans are at the core of Australia’s lending landscape, shaping the financial realities for homeowners, investors, and business owners. As lending standards tighten and property values fluctuate in 2025, it’s more important than ever for Australians to understand what recourse means—and the real-world consequences it brings.

What is a Recourse Loan? How Do They Work in Australia?

A recourse loan gives the lender the legal right to pursue not just the secured asset (such as your home or vehicle), but also your other personal assets or income if you default on repayments. In other words, if the sale of the security doesn’t cover your outstanding loan balance, the lender can chase you for the shortfall.

• Home loans: Nearly all Australian mortgages are recourse loans. If you default and the lender repossesses and sells your property for less than you owe, you remain liable for the difference.
• Business finance: Many business loans are also recourse—especially if they’re secured against both business assets and personal guarantees from directors.
• Car and asset finance: Most car loans and equipment finance in Australia are recourse loans, giving lenders broad powers to recover debt.

Example: If you owe $700,000 on a mortgage and your home is sold by the lender for $650,000, you still owe $50,000 plus recovery costs. The lender can seek a court order to access your savings, garnish wages, or even force bankruptcy if you can’t pay the difference.

2025 Policy Updates: Regulatory Shifts and Borrower Safeguards

Recent years have seen scrutiny of recourse lending practices, particularly as property prices plateau and cost-of-living pressures mount. In 2025, several regulatory shifts are shaping how recourse loans are managed:

• ASIC’s Responsible Lending Amendments: Reforms implemented in late 2024 require lenders to strengthen their assessment of borrowers’ capacity to repay, aiming to reduce the risk of defaults and subsequent recourse actions.
• Hardship Provisions: The National Consumer Credit Protection Act (NCCP) now mandates clearer hardship processes for struggling borrowers, giving Australians more time and options before lenders can pursue additional assets.
• Debt Collection Code: The Australian Financial Complaints Authority (AFCA) has updated its code to ensure fairer treatment of debtors during recourse recovery, including limits on aggressive collection tactics and clearer communication requirements.

Despite these protections, the fundamental nature of recourse loans means the risk of personal liability remains unless you negotiate a non-recourse agreement (rare in Australia outside specialised commercial deals).

Risks and Strategies for Borrowers in 2025

Understanding your exposure under a recourse loan is vital for effective financial planning. Here’s how Australians are navigating these risks in 2025:

• Loan-to-Value Ratio (LVR) Awareness: Many lenders are tightening LVR requirements, especially for investment properties and business finance. Keeping your LVR low reduces the risk of negative equity and recourse action.
• Hardship Negotiations: With more borrowers experiencing financial stress, engaging early with your lender—using formal hardship provisions—can often lead to repayment pauses or restructuring, avoiding default and recourse enforcement.
• Asset Protection: Business owners are increasingly separating personal and company assets through structures like family trusts or corporate entities, limiting exposure in case of default on a business loan.
• Monitoring Market Trends: As property price growth slows and unemployment rises modestly in 2025, financial advisers recommend regular reviews of your net asset position and insurance cover.

Real-World Example: In early 2025, a Sydney couple faced negative equity after a property market dip. By engaging with their lender under the new hardship code, they negotiated a 12-month interest-only period, allowing them to recover without facing immediate recourse proceedings.

Alternatives: Are Non-Recourse Loans an Option?

Non-recourse loans—where the lender’s claim is limited to the secured asset—are extremely rare in Australia, usually reserved for certain commercial or project finance deals. For most residential borrowers and small businesses, recourse is the norm.

However, some fintech lenders are experimenting with limited recourse personal loans, particularly for green energy upgrades (like solar loans) where the asset’s resale value is high. These remain niche, with stricter approval criteria and higher interest rates reflecting increased lender risk.

Conclusion

Recourse loans are a double-edged sword—making credit more accessible, but exposing borrowers to personal liability if things go wrong. In 2025’s cautious lending climate, understanding your loan contract, knowing your rights under new hardship provisions, and actively managing your risk exposure is more important than ever. If you’re considering a major loan, ask tough questions about recourse terms before you sign on the dotted line.