Vendor finance on a block of flats: how the deferred bit actually works

The short answer

On a block of flats, vendor finance usually means this: the seller agrees the full price, the sale completes, and part of that price is paid to the seller later, at an agreed date, secured against some of the flats. You fund the rest with a lender in the normal way. When the deferral period ends, you refinance the flats the seller was holding as security and pay them out.

Title splitting is what makes this work. Because the block becomes individual leasehold flats on the day you complete, the seller is not being asked to trust a promise. They are given specific, separate flats as security. That is a far easier thing for a seller, and their solicitor, to say yes to.

How it works on a real-sized block

Here is the worked example I use, kept round so the mechanics are easy to follow. A block of 20 flats, agreed at £2 million.

Notice what step 5 does NOT need: a value uplift. The split already happened on completion, so you are simply refinancing leasehold flats you own, with any lender that will lend on leasehold flats in a limited company. The deal does not depend on a revaluation going your way.

One precondition. The flats you offer as the seller's security must be clear of any existing mortgage. If the seller has borrowing on the block, the money from your first mortgage can be used to clear their debt on completion, which leaves the remaining flats free to be used as security for the deferred amount.

Call it deferred consideration, not vendor finance

This sounds like a small point. It is not. Put this to a seller, or worse, to their solicitor, as "vendor finance" or "I am not putting a deposit down" and it can sound risky at best and like a scam at worst. I have had a solicitor react exactly that way.

Put it like this instead: you are selling the flats now, at the agreed price, and deferring receipt of part of the money for twelve months, secured against the flats themselves. Same deal. Completely different reaction. The seller hears a sale at their price with security, not a favour to an investor.

The interest rate is a negotiation, not a given

What the seller earns on the deferred amount is entirely negotiable. Some sellers want double digits. Some are happy to match whatever a mortgage lender would charge, because the frame is a genuine win for both sides. On one mixed-use building I bought, the deferred part was agreed at 0% for twelve months.

A useful refinement: you collect rent from every flat, but you only pay a mortgage on some of them. The surplus from the unmortgaged flats can go straight to the seller as voluntary overpayments, so the deferred balance comes down month by month and the final refinance is smaller. Sellers like seeing that money arrive. It builds trust fast.

Which sellers say yes

This suits a motivated seller for whom waiting six or twelve months for part of the money is not a real hardship. Retiring landlords are the classic case: often selling more than one building, often with no cash buyer at their price, and often more interested in a clean, certain sale than in having every penny on day one.

It does not suit a seller who has told you they want a clean exit and nothing to do with the building afterwards. If they have said that, vendor finance is very likely an instant no, and pushing it will cost you the relationship.

The real skill is finding out what the seller is fixed on and what they will flex on. On one building the seller would not move a pound on price, but was genuinely flexible on everything else: timing, structure, a share sale, and part of the price deferred at 0%. None of that was volunteered. It only came out by asking. Treat price, timing, structure and deferred payment as separate levers. A "no" on price is not a "no" on the deal.

When it is not worth the bother

A deferral that is too short often gains you nothing. In our experience, after roughly six months lenders will generally value on open market value rather than anchoring to what you paid. Defer for less than that and you may end up refinancing on the same number you could have borrowed on day one, having added complexity for no benefit. The structure earns its keep when it lasts long enough to capture a discount to market or a genuine value uplift.

And be honest with yourself about the risk. Vendor finance layered with a delayed completion, works before completion, or a planning change later is a game of chess. You will not win unless you are playing three or more moves ahead, because it depends on valuations, consents and costs all landing as modelled. That is a more advanced strategy built on top of title splitting, not a substitute for a straightforward split on acquisition.

The lender has to know

Never hide deferred consideration from your lender. It has to be disclosed, and not every lender will accept it. In our experience bridging lenders are generally more open to vendor finance sitting in a deal than mortgage lenders are, and appetite changes. Get your broker to confirm the specific lender's position before you agree anything with the seller, and have your solicitor document the security properly.

Questions people ask about vendor finance on a block

Related reading

• Can you get a mortgage on individual flats in a split block? How the finance actually works, and where these deals get stuck.
• How a valuer decides what your split units are worth. The two valuation bases and what makes a comparable stand up.
• The title split process, step by step. The three routes, the two-company structure, and why registration is never automatic.
• How much does a title split cost? Every line of the bill, with the figures we use in our own deal stacking.