Wrap-Around Loans in Australia: How They Work & 2025 Policy Update

Wrap-around loans have long been a niche financing tool overseas, but in 2025, they’re emerging as a creative alternative in Australia’s evolving property market. With high interest rates and stricter lending criteria continuing to bite, buyers and sellers alike are searching for flexible solutions—enter the wrap-around loan. But what exactly is it, and how does it fit into today’s regulatory landscape?

What is a Wrap-Around Loan?

A wrap-around loan (or ‘wrap loan’) is a form of seller financing where the seller keeps their existing mortgage and extends a new loan to the buyer that “wraps around” the original. The buyer makes payments to the seller, who continues to pay the original lender. This structure allows for creative deal-making, especially when buyers can’t secure traditional financing or want to lock in a fixed rate in a volatile environment.

• Example: Sally wants to sell her house, which has a $400,000 mortgage at 4% fixed. Ben, unable to get a new loan, offers to buy for $500,000. Sally ‘wraps’ her $400k mortgage with a new $500k loan to Ben at 6%. Ben pays Sally, Sally pays her lender, and the difference is Sally’s profit.

This approach isn’t widespread in Australia—yet—but with 2025’s lending headwinds, more property owners and buyers are exploring it.

Why Wrap-Around Loans Are Attracting Attention in 2025

Australia’s housing market in 2025 is defined by:

• Persistently high interest rates (RBA cash rate at 4.35% as of June 2025)
• Tightened bank lending standards following new APRA responsible lending guidance
• Increased demand for alternative finance, especially among self-employed, expats, or credit-impaired buyers

Wrap-around loans offer several distinct advantages:

• Flexibility: Sellers can negotiate terms (deposit, rate, repayment period) directly with buyers.
• Speed: Transactions can proceed quickly, avoiding lengthy bank approvals.
• Opportunity for profit: Sellers may earn a margin on the difference between their mortgage rate and the wrap loan rate.

Buyers, meanwhile, get access to homes they might otherwise miss out on—and sometimes at more favourable terms than private lenders or non-bank financiers.

Legal and Regulatory Considerations: 2025 Update

In 2025, wrap-around loans remain legal in Australia, but they’re subject to strict compliance. The Australian Securities & Investments Commission (ASIC) has issued fresh guidance this year, highlighting key areas of risk:

• Disclosure: Sellers must fully inform buyers of all terms, including existing mortgage details and risks.
• Lender consent: Most major banks require written approval before a property is sold with an existing mortgage in place.
• Consumer protections: Wrap loans may be considered “credit contracts” under the National Credit Code, triggering responsible lending obligations and dispute resolution requirements.
• Stamp duty and taxes: Buyers are liable for standard transfer duties, and sellers must declare any capital gains.

Recent 2025 court decisions have reinforced the need for wrap-around loans to be structured transparently, with independent legal and financial advice strongly recommended for all parties.

Real-World Applications and Risks

Wrap loans are best suited to:

• Buyers with non-traditional income or temporary credit setbacks
• Sellers in slow markets who want to attract a wider pool of buyers
• Family transfers or off-market deals where trust exists between parties

However, there are genuine risks:

• Due-on-sale clauses: Most Australian mortgages contain clauses allowing the lender to call in the loan if the property is sold without consent.
• Default risk: If the buyer misses payments, the seller is still liable to their original lender.
• Complexity: Without expert guidance, wrap loans can lead to costly legal disputes or accidental breaches of lending law.

Despite these risks, wrap-around loans are becoming more visible in legal and property circles in 2025, with several fintech startups offering digital contracts and escrow services to streamline the process.

The Bottom Line

Wrap-around loans won’t suit everyone, but in a tight lending environment, they can unlock opportunities for both buyers and sellers. As with any property deal, transparency and proper documentation are essential—especially with stricter 2025 compliance requirements. If you’re considering a wrap loan, make sure you understand the mechanics, the risks, and the latest legal guidance before signing on the dotted line.