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What is a Deposit Bond?
A Deposit 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 widely accepted and trusted throughout Australia as a means of securing a property purchase. Deposit guarantees are legal in every state and territory across Australia.
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 Bonds 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.
Deposit Guarantees can be a low cost alternative compared to other options such as overdrafts, bridging finance or breaking a fixed term investment. Deposit Guarantees are very useful if you have cash tied up in other investments such as shares or a term deposit or are waiting on the settlement of an existing property.
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. For instance, 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. Instead of using your cash for the deposit, 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 is the ideal 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 options 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; private treaty.
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. Fee quotes 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. An administration fee of $220 for Short Term Deposit Guarantees and $700 for Long Term Deposit Guarantees is deducted from any refund provided.
How does it work – for sellers (vendors)
For sellers Deposit Guarantees offer a safe and assured 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 the purchase contract, the seller has the ability to claim on the Deposit Guarantee and the guarantor, an Insurance Company who is legally obliged to pay the guaranteed amount to the stakeholder named in the purchase contract within 2 clear business days. This process effectively puts all parties in the same position as if a cash deposit had been provided by the purchaser.
For more information please contact one of our Lending Specialists today.