Vendor Take-Back Mortgage: How They Work in Australia (2025 Guide)

As bank lending tightens and property market conditions evolve in 2025, vendor take-back mortgages (VTBs) are emerging as a creative solution for both sellers and buyers. Once a niche financing tool, VTBs are now being used in more Australian property deals—offering flexibility where banks may not.

What is a Vendor Take-Back Mortgage?

A vendor take-back mortgage is an arrangement where the seller of a property acts as the lender for the buyer, offering finance for a portion of the purchase price. Instead of the buyer borrowing the full amount from a traditional bank, the seller ‘takes back’ a mortgage, typically for 10-30% of the purchase price, and the buyer repays them over an agreed period.

• Structure: The buyer makes regular repayments (often interest-only or principal & interest) to the seller, while also servicing any traditional loan.
• Registration: The VTB is usually registered on the property title as a second mortgage, protecting the seller’s interest.
• Term: Commonly 1–5 years, after which the buyer is expected to refinance or pay out the balance.

This approach can bridge gaps for buyers struggling to meet strict bank lending criteria, while helping sellers move properties faster or achieve better prices.

Why Are Vendor Take-Back Mortgages Gaining Popularity in 2025?

Several 2025 trends are driving renewed interest in VTBs:

• Stricter Bank Lending: In response to APRA’s continued focus on responsible lending and rising serviceability buffers, banks are declining more applications, especially from self-employed buyers or those with non-traditional income.
• Property Price Volatility: As the property market experiences patchy growth and softening in some regions, sellers are becoming more flexible to close deals.
• Changing Tax and Policy Landscape: Recent tweaks to negative gearing, capital gains tax (CGT) concessions, and first home buyer schemes have altered the incentives for both buyers and sellers. Some sellers are using VTBs to defer CGT events or smooth out cash flow.

Real estate agents are reporting a noticeable uptick in VTB arrangements for commercial property, off-the-plan apartments, and even rural land sales, where traditional finance can be especially challenging.

Who Can Benefit from a Vendor Take-Back Mortgage?

While not suitable for every transaction, VTBs can deliver real value in the right circumstances:

• Buyers: Those with limited deposits, recent self-employment, or unique income sources may qualify for a VTB where a bank says no. It can also help buyers negotiate a lower interest rate or defer some costs.
• Sellers: Property owners struggling to attract buyers in a slow market, or those wanting to maximise the sale price, can use a VTB as a sweetener. Sellers also earn interest income, which can outperform some other investments.
• Developers: For off-the-plan projects, VTBs can secure pre-sales, unlock finance, and keep projects moving.

Example: A family in regional NSW wants to buy a $700,000 home but only secures a $560,000 bank loan due to serviceability issues. The seller agrees to finance the remaining $70,000 at 6% p.a. interest for three years, giving the buyer time to improve their financial position and refinance the VTB down the track.

Risks, Rules, and the 2025 Legal Landscape

Vendor take-back mortgages do involve risk. If the buyer defaults, the seller may need to enforce their mortgage, which can be costly and time-consuming. Sellers should ensure:

• Proper documentation and legal advice
• Clear terms on interest rates, repayment schedules, and default consequences
• Registration of the mortgage on title to protect their position

2025 Policy Note: The Australian Taxation Office (ATO) has clarified that VTBs may have CGT implications for sellers, especially if structured with deferred settlements. The Australian Securities and Investments Commission (ASIC) also reminds sellers that offering credit on a regular basis could trigger credit licensing requirements. Staying compliant is critical.

Is a Vendor Take-Back Mortgage Right for You?

VTBs are not a mainstream solution, but with the right structure, they can unlock deals that might otherwise fall through. As lending conditions remain tight in 2025 and property market dynamics shift, expect to see more creative finance solutions like vendor take-back mortgages shaping the Australian real estate landscape.