The One Clause That Could Cost You Your Dream Home — And Most Buyers Miss It
/Finance Clauses Are Not a Free Pass — Here’s What You Need to Know Before Signing
Most Victorian buyers breathe a sigh of relief when they see the words "subject to finance" in a contract. It feels like a safety net — if your loan doesn’t come through, you can simply walk away.
But here’s the truth: that clause might not protect you at all.
As explained by David Dawn, Licensed Conveyancer at Victorian Property Settlements, finance conditions in Victorian contracts are often misunderstood, poorly worded, and far more dangerous than most people realise.
In fact, you can lose your deposit and be sued for damages even if your finance is declined, depending on how the clause is drafted — and some clauses are deliberately written to favour the vendor.
Let’s unpack the hidden trap.
Why Most Buyers Get It Wrong
In Victoria, finance clauses aren’t standard — they’re negotiated.
There is no one-size-fits-all wording. Some contracts use generic wording like:
“This contract is subject to the purchaser obtaining finance approval on or before [insert date].”
But unless the clause also sets out:
The amount of finance (e.g. $700,000 or “sufficient to complete the purchase”)
The lender’s name (or at least, "from a bank or reputable financial institution")
A clear deadline for approval
A requirement to notify the vendor if finance is declined
A clear termination mechanism
…then you may not be protected at all.
Some clauses don’t even require the vendor to refund your deposit unless you provide written notice in time — and if you’re late by even one day, the deal becomes unconditional.
Real Risk: When a Rejection Isn’t Enough
Many buyers assume that if their bank declines the loan, they can just walk away.
But that’s not always true.
If the finance clause doesn’t explicitly allow for non-approval from your lender as a valid reason to terminate, you might be forced to settle anyway.
We’ve seen cases where buyers are told by agents or banks not to worry — only to lose tens of thousands in penalties when the clause didn’t protect them.
Vendor-Favouring Clauses: Don’t Be Fooled
When Victorian Property Settlements is acting for a vendor, our job is to protect their rights. That often means inserting a strict finance clause that puts the burden on the purchaser.
For example:
Tight deadlines — 7 days or less
Requiring notification of lender rejection in writing
No extensions unless agreed in writing
Automatic loss of finance rights if notice isn’t given in time
These are perfectly legal — and very common.
So if you’re a buyer signing a contract with a finance clause already inserted, especially at an open house or auction offer, don’t assume it works in your favour.
What Buyers Should Do Before Signing
If you’re purchasing in Victoria and want to be protected:
Never assume a finance clause is standard.
Always read the full wording — or better yet, get it reviewed by a licensed conveyancer before you sign.Clarify your lender and amount required.
Include specifics to avoid ambiguity.Don’t delay your loan application.
Delays on your side don’t excuse failure to meet the finance deadline.Give written notice if finance is declined — and do it on time.
A phone call or email to the agent is not enough.If in doubt, negotiate a longer approval period or a broader condition before signing.
Conclusion
A poorly worded finance clause is not a safety net — it’s a trap.
Whether you're a first-time buyer or a seasoned investor, don’t assume a “subject to finance” condition protects you from risk. It only works if it’s drafted correctly and if you act in time.
At Victorian Property Settlements, we review and draft finance clauses daily — whether acting for buyers or tightening terms for vendors. That’s why we always recommend getting independent advice before signing.
If you’re unsure about your finance clause, contact us before you commit. A 10-minute review could save you a six-figure mistake.