In a world where owning a home/asset(s)/Property tops a majority’s list of priorities, we
all agree that getting the property/home/asset is just one part of it. Being in a financial
position to acquire the asset/home is the part that matters most.
Yet, most people, though not able to fully settle the principal amount/purchase price for
the asset at the onset can acquire assets through other ways such as through Vendor back mortgages.
It is said that Vendor take-back mortgages were created out of necessity in the 18th and
19th centuries. This concept came about to cure the high interest rates on loans that were
attached to the traditional forms of mortgages, especially for loans/mortgages given by
financial institutions.
DEFINITION
Vendor Take-Back Mortgage is also referred to as Seller Take-Back Mortgage. Simply put, Vendor/Seller Take-back Mortgage refers to a kind of financial assistance offered by a seller to a purchaser. This means that the Seller lends a part of the sale/purchase money to the purchaser to acquire a specific asset being sold by that seller.HISTORY OF VENDOR TAKE-BACK MORTGAGE
As stated above, the concept of vendor takeback arose out of necessity in the late 18th and early 19th century. It is said that back then, even though the idea of loans was still prevalent, and mortgages existed, the interests applied on such loans/mortgages were exorbitantly high. This meant that accessing mortgages and acquiring assets through mortgages was almost impossible for most people. As such, and due to this predicament, the concept of Vendor Take-Back Mortgage was birthed.
APPLICATION OF VENDOR TAKE-BACK MORTGAGE
Predominantly applied in London in the recent past, this concept allows a buyer anyone wishing to own a home or acquire assets/property e.g. Land, house, etc. to do so through part financial assistance from the seller for a portion of the property. Vendor Take-Back Mortgage benefits both the seller and the buyer. This could be due to many reasons including: ✓ Competitive listings of similar properties/assets to those of the seller. ✓ Seller’s need to dispose off that kind of asset(s)/property. ✓ Relationship between the buyer and the seller. ✓ Credit limit on the part of the purchaser, Etc. In Vendor Take-Back Mortgage, the seller retains equity over the asset/property as well as a percentage of its value, which is equal to the loan owed by the purchaser, until the purchaser pays back the loan plus the interest. In most cases, the purchaser already has a primary source of funding from a financial institution e.g. Bank, making VTB somewhat of a second mortgage that creates an encumbrance/charge on the property. It, therefore, becomes a second lien to that created by the primary financial institution.CONCLUSION
Both the Vendor Take-Back Mortgage and the traditional forms of mortgage have certain similarities as well as differences. VTB majorly differs from the traditional mortgage in that VTB mortgages are borrowed from the original owner of a property, rather than a bank or other mortgage lenders. As such, the seller retains partial ownership of the home/asset or property until the loan is paid off in full.
Article by Muthoni Muriithi
Disclaimer
This article is intended for general knowledge only. It does not create and/or imply any kind of
advocate-client relationship between any reader and Property Boutique (E.A) Limited. For
expert advice on VTB, please contact us through ymuriithi@propertyboutique.co.ke
