What are Deposit Bonds?

Deposit Bonds are becoming a common part of the conveyancing process. So it is important for vendors and purchasers alike to understand what Deposit Bonds are.

A Deposit Bond is a substitute for all or part of the usual cash deposit. The deposit is typically 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.

The term of the deposit bond can be from 6 months to 48 months. Longer term deposit bonds are usual when purchasing off-the-plan property.

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.

In order to obtain a deposit bond you will need some documents to support your application. Documents such as the following a typically required:

  • 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 for.

What is the benefit of a deposit bond versus cash deposit?

Greater flexibility at auction. You select your maximum bid amount and the deposit is then valid for up to 10% of that amount. You can then retain the same deposit bond for up to 6 months until you are successful at auction.

First home buyers. With high property prices first home buyers may not have access to 10% cash deposit but can get loan approval for excess of 5%. A deposit bond (possibly with the need for guarantor) is therefore an option to avoid committing to a cash deposit.

Buying off the plan. When buying off the plan, typically the vendor invests the deposit in a low interest earning account which you may only get half of the interest earnt on settlement. However, with a deposit bond you can leave your money where it is and still secure the perfect property.

For more information, please contact:

Kylie Fuentes
Licensed Conveyancer & JP
1300 268 887

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This blog is merely general and non specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.