Vendor finance means the seller agrees to leave part of the purchase price outstanding for an agreed period, with the buyer paying interest and repaying or refinancing later. It can bridge a genuine funding gap in a slow market — but it turns you from a seller into a lender, and that is a different business with different risks. Before anything else: this is a legal and financial structuring decision, not a marketing one, and it needs a property lawyer and an accountant involved from the start.
How It Works
A buyer might fund a purchase from three sources: a bank loan, their own deposit, and an amount borrowed from the seller. The seller's portion is documented separately, carries an agreed interest rate and repayment schedule, and is usually expected to be refinanced within a set period.
New Zealand banks assess borrowers under their own policies alongside Reserve Bank loan-to-value and debt-to-income restrictions, so gaps do genuinely arise for buyers who are otherwise sound.
The Questions That Decide Whether It Is Safe
- What security do you hold? Usually a second mortgage, which ranks behind the bank. If the buyer defaults and the property sells for less than expected, the bank is paid first and you may not be.
- What happens if they cannot refinance? Plan for the scenario where the buyer's circumstances or the market have not improved when the term ends. That is the base case worth stress-testing, not the exception.
- Is the arrangement properly documented? Interest rate, term, repayment schedule, default triggers and remedies all need to be in a formal agreement drafted by a lawyer. Consumer credit legislation can apply depending on the structure.
- Do you actually need the money? If your next purchase depends on receiving the full price at settlement, vendor finance is not available to you regardless of how attractive the offer looks.
Our Position
We should be upfront about the conflict: vendor finance enables sales that would otherwise not happen, which means an agent's interests and a seller's interests are not perfectly aligned here. Our view is that it suits a narrow set of situations — typically a seller with no urgent need for the full proceeds, a buyer with a demonstrable path to refinancing, and a modest gap rather than a large one. For most East Auckland sellers in the $800,000–$2,000,000 range, the better answer to a soft market is usually pricing and campaign strategy, not lending your own money to the buyer.
Team Eric Wu at Ray White Botany has completed 82 East Auckland transactions since January 2025 at a median of $1,301,000. Talk to us — and to your lawyer — before agreeing to anything of this kind.