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What is a Deposit Bond?
A deposit bond (“bond”) or deposit guarantee can be used in lieu of cash for the deposit required when you purchase a property. The bond acts as a guarantee for payment of the deposit, therefore at settlement you simply pay the full purchase price including the deposit.
Deposit guarantees are legal in every state and territory across Australia and are widely accepted and trusted as a means of securing a property purchase.
A deposit guarantee can be issued for all or part of the deposit amount required, up to 10% of the purchase price. Depending on negotiations between you and the vendor deposit amounts can vary anywhere between 1% up to 10% of the property purchase price. At times you may want to split your deposit between cash and a deposit guarantee.
Deposit guarantees can be issued to purchase most types of properties with settlement terms to match the needs of the purchaser. Most established properties settle within 6 months or sooner but there are many other situations that require a longer settlement term, up to 48 months for unregistered properties, vacant land, properties-under-construction and off-the-plan purchases.
There are two types of Deposit Guarantees available based on the settlement term:
- Short term deposit guarantee – for settlement terms up to 6 months
- Long term deposit guarantees – for settlement terms between 6 and 48 months
Why use a Deposit Guarantee?
A deposit guarantee is a quick and easy alternative to a cash deposit that is payable when signing a contract to purchase property. The application process is fast, with any applicants being eligible for a quick approval with the help of one of our Lending Specialists.
There are many situations where a purchaser has the ability to purchase a property but when it comes to the deposit they may not have easy or readily available access to a cash deposit or would prefer not to use their cash immediately. It can be a low cost alternative compared to other options such as overdrafts, bridging finance or breaking a fixed term investment. For example, if you are still waiting for the settlement on a property that is being sold, or you have a fixed term deposit account that you’d rather hold onto until settlement, you can use a deposit guarantee as an alternative.
Another benefit is for first homebuyers who may not be able to provide the deposit upfront until they receive a government grant or gift from family, which is often not accessible until settlement. In these situations a deposit guarantee may be a solution.
How does it work – for Buyers (Purchasers)?
A deposit guarantee can often simplify the process of buying a property. For purchasers it provides a quick and convenient way of accessing a deposit without having to arrange other time consuming and expensive alternatives such as bridging loans, the sale of shares or an equity release from existing property.
The deposit guarantee simply takes the place of the cash deposit required in the contract. A guarantee certificate is produced which is held by the sellers’ representative until settlement (usually their solicitor or conveyancer). At settlement the purchaser simply pays the full purchase price including the deposit amount at which point the guarantee becomes void.
The process for purchasers differs slightly depending on whether you’re intending to buy at auction or make an offer on a property.
Deposit guarantees are available to any person living and residing permanently in Australia; this includes individuals, first homebuyers, retirees, self-employed, trusts, corporate entities or SMSF purchasing residential or commercial real estate.
How much does a Deposit Guarantee Cost?
Deposit guarantees can be a low cost alternative compared to other options such as overdrafts, bridging finance or short-term loans.
A fee is paid when the Deposit Guarantee is issued and is calculated on the deposit guarantee amount and the term of guarantee required. A quote for fees can be obtained from your Citiwide Lending Specialist.
A refund of the fee may be payable where the original unused guarantee certificate is returned within 30 days of the date of issue.
How does it work – for Sellers (Vendors)?
For sellers deposit guarantees offer an alternative to securing a quick sale, particularly in situations where they are looking to buy and sell at the same time.
Should the purchaser default under the terms of a purchase contract, the vendor has the ability to claim on the deposit guarantee and the guarantor, (normally an insurance company) is legally obliged to pay the guaranteed amount vendor.
For more information please contact one of our Lending Specialists today.