What are Deposit Bonds?

Deposit Bonds are becoming a common part of the conveyancing process, especially with ever increasing property prices.  So it is important for vendors and purchasers alike to understand what Deposit Bonds are.

What is a Deposit Bond?

A Deposit Bond is a substitute for all or part of the typical cash deposit paid on exchange of Contracts in the conveyancing process.  It almost like a form of insurance where the institution providing the deposit bond is saying the purchaser is good for the money.

Deposit Bonds can be for short terms of up to 6 months or long terms up to 48 months (this is beneficial if purchasing off the plan).

Where can you get a Deposit Bond from?

Deposit Bonds can be obtained through specific companies that only deal in deposit bonds, or through your banking institution.

What is required to obtain a Deposit Bond?

Documentation required to support your application varies between institutions, however as a general guide, you may need:

  • Copy of your loan approval;
  • Evidence of funds to complete the purchase;
  • Signed and dated Contract for Sale (if selling existing property)

What is the cost of a Deposit Bond?

The cost varies between institutions and will vary depending on the value of the deposit bond and how long you need it in place.

Benefits of a Deposit Bond

The benefits of a deposit bond vary between the individuals circumstances, however some top benefits include:

  • Provide a greater flexibility at auctions, as the deposit bond can provide you with a maximum deposit of 10% of your maximum bid. These types of deposit bonds are not made in favour of a specific vendor and can be issued for a 6 month term.
  • First home buyers may not always have a full 10% deposit, but can get funding for 95% of their purchase, so instead of committing to a cash deposit a deposit bond (possibility with the need for guarantor) can be obtained to ease the pressure.
  • When buying off the plan, instead of having your 5% or 10% deposit being invested in a low interest earning account for up to 48 months, you can leave your money where it is and obtain a deposit bond for the period of the Contract.

If you would like to know more please contact one of the Licensed Conveyancers at Coutts on 1300 268 887.