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What is a Deposit Bond (Deposit Guarantee)?
Who can apply for a Deposit Bond?
How does a Deposit Bonds work?
When can & can’t a Deposit Bond be used?
What are Deposit Bond applicants committing to?
What are the benefits of using a Deposit Bond?
Are Deposit Bonds widely accepted?
What are the acceptance criteria for Deposit Bond applications?
Can applicant(s) still get a Deposit Bond if they don’t already own Australian based real estate?
Is there a maximum Deposit Bond amount?
Can I use part cash and a Deposit Bond for the deposit amount?
How long can a Deposit Bond be issued for?
How much does a Deposit Bond cost?
How does the cost of a Deposit Bond compare to a Bank Guarantee?
Can I get a refund on the Deposit Bond if I don’t proceed with the Contract of Sale?
How quickly can a Deposit Bond be issued?
What happens with the Deposit Bond after settlement?
When does the Deposit Bond expire?
How do I get a Deposit Bond?
Using Deposit Bonds for an ‘auction’ purchase
Using a Deposit Bond for an ‘off the plan’ purchase
Is there a refund for ‘off the plan’ Deposit Bonds if settlement occurs before the Expiry Date noted on the Deposit Bond certificate?
Can we still get a Deposit Bond if all or part of the real estate we own is held in a Trust structure?
What happens if the Deposit Bond needs to be extended?
When might a guarantor be required to support a Deposit Bond application?
What happens to the Deposit Bond if the buyer can’t settle or complete the Contract of Sale?
Why use Aussie Deposit Bonds?
A Deposit Bond is a form of undertaking accepted by sellers/vendors, in lieu of cash or a bank guarantee, where buyers are required to lodge a deposit to secure the purchase of a Residential or Commercial Property, as detailed in the Contract of Sale. Sellers/vendors require a percentage up to 10% of the purchase price, as a deposit.
The issuer of the Deposit Bond, in our case A+ rated QBE Insurance (Australia) Limited (‘QBE’), guarantees unconditional payment of the deposit bond amount to the seller/vendor in the event that the buyer fails to settle/complete the Contract of Sale.
A Deposit Bond is an Unconditional Demand and as such is accepted by sellers/vendors as equivalent to cash. Importantly, Deposit Bonds are ‘unsecured’, which means that the buyer’s assets, savings or lines of credit can be kept intact, until the settlement date of the proposed property purchase.
As to who can apply, any Australian permanent resident (or those with permanent visas), trusts, self-managed super funds, registered business entities, partnerships,etc., looking to purchase Australian based residential or commercial real estate (‘established’ or ‘off the plan’), including vacant land and Land&House packages.
Let’s use the example of a $500,000 property purchase with a 10% deposit required. The process is the same for both short-term settlements involving ‘established’ property (say 4 weeks to 6 months) or long-term settlement involving ‘off the plan’ property (say 24 months).
If using cash, $50,000 is paid upfront and the remaining $450,000 (90%) at the time of settlement.
If using a bank guarantee, the bank will take some form of security over the buyer’s assets or part of an overdraft or line of credit; charge a bank fee: and issue the bank guarantee. As no ‘cash’ has been paid upfront, 100% of the purchase price ($500,000) is paid to settle the purchase and the bank guarantee is released because it is no further use.
If using a Deposit Bond, the buyer pays a Bond Fee; Aussie Bonds Australia issues a Deposit Bond on behalf of QBE; and similar to a bank guarantee, 100% of the purchase price ($500,000) is paid to settle the purchase and the Deposit Bond is released.
With a Deposit Bond, there’s no need to find $50,000 cash up front; there’s no need to take out bridging finance or increase the mortgage or disturb any current investments to generate the $50,000 cash; nor have the bank take extra security over your assets; plus, Deposit Bonds can be issued within an hour versus a week or more for a bank guarantee.
Deposit Bonds can be requested by Individuals (including first home buyers), Trusts, Self-Managed Super Funds, Business Entities, Partnerships and the like looking to purchase Australian based Residential or Commercial real estate. The real estate can be vacant land, land&house packages, established property, or off the plan.
We can’t issue Deposit Bonds where (a) the settlement period is greater than six months and the property being purchased is located in a town where the local shire population is less than 50,000 people; (b) the property being purchased is part of a complex where the apartments are independently owned, but are on-leased to a proprietor to operate as a hotel or similar; and (c) where an applicant has previously defaulted on a property settlement and the issued Deposit Bond has been claimed.
As with any legal document there are terms, conditions & obligations. You need to seek professional advice, so you know what you are agreeing to. The key three relate to (a) the applicants providing accurate information; (b) privacy of the information you provide, with authority for us to carry out relevant checks with other agencies, such as your finance providers, your credit history, etc.; and (c) that the applicants are liable to pay QBE the deposit amount noted on the issued Deposit Bond, should they fail to settle on the Contract of Sale.
In essence, Deposit Bonds are perfect for buyers who are asset rich and cash poor; first home buyers who don’t have the required 10% deposit or want to leave their savings untouched to demonstrate a savings pattern to their funder; or buyers who don’t want to mess with existing investments until settlement time.
Yes, however, the seller/vendor can reject. Deposit Bonds originated in 1987 and are now universally accepted Australia wide. Some Vendors, Property Developers and Lenders will insist on QBE Deposit Bonds only, due to QBE’s track record and their important S&P A+ rating.
If the Buyer has ‘unconditional finance approved’ or has ‘pre-approval, subject to valuation’ from a licensed finance provider, applications are automatically accepted. For all other application, we look at the applicant’s ability to service the loans and have sufficient ‘net equity’ in existing Australian based real estate.
Because Deposit Bonds are issued on an ‘unsecured’ basis (bank guarantees and home loans are typically secured against assets), QBE requires that the applicant(s) have existing Australian based real estate. This isn’t obviously the case for first home buyers or newly arrived residents to Australia that may own overseas assets. In both cases, the applicant(s) would need a family member, who has Australian based assets, to go as a Guarantor.
No, however (a) Deposit Bond can never be for more than 10% of the purchase price and (b) the applicants/buyers have sufficient net equity to support the amount of the Deposit Bond sought.
Yes, applicants have that flexibility, however, they need to weigh up the pluses and minuses. For first home buyers, demonstrating a savings pattern is key to securing a future home loan, so it may be more desirable to leave cash on term deposit versus using as a deposit. For ‘off the plan’ purchases, a concern often expressed is What happens to my cash deposit if the developer collapses before the project is completed? Sure, my cash should be held in trust, but how long before I get my cash back from the receivers’
Where Deposit Bond applications are supported by ‘finance approved’, up to 6 months. Without ‘Finance approval’, up to 60 months (66 months in QLD).
Pricing depends on a couple of factors, mainly the deposit amount and how long to settlement. Best to go to the Home Page on this website; select the panel that aligns with your buying scenario (Established Property, Sell/Buy; Auction, Off The Plan, etc.) and use the ‘Obtain Quote’ tab.
Bank Guarantees are typically used for ‘Off The Plan’ purchases. You’ll need to check with your bank or adviser. We’re told that if the Bank Guarantee is secured against a ‘term deposit’, then there’s the offset of the interest received on the ‘term deposit’ versus the cost to issue and ongoing guarantee fee, however, with interest rates low, less tax on the interest received, spare cash might be put to a better use re paying off credit cards, personal or car or home loan. If you need to extend your loan to secure the Bank Guarantee, then there’s the extra home loan interest cost, plus the issue and ongoing guarantee fee, which, in total, is much higher than the Deposit Bond fee, plus you haven’t tied up any assets as the Deposit Bond is issued on an ‘unsecured’ basis.
Sure, so long as the original Deposit Bond is returned to us within 30 days of issue, we’ll refund the cost of the Deposit Bond less our issue fee. See comments related to using bonds for ‘auctions’ below.
If we receive complete paperwork and payment is via credit card (as we must have cleared funds before releasing the Deposit Bond), we can issue and release the Deposit Bond within an hour or so; same business day if by 4pm Sydney time; otherwise first thing the next business day. If paying by EFT, we have to wait for the EFT to clear. Banks and credit unions are slowing coming onto the ‘real time’ platform, the EFT may clear same business day or overnight.
It becomes ‘null & void’. It has done it job by acting as the required deposit and the applicants/buyers have subsequently paid 100% of the purchase price to settle.
The Deposit Bond expires when one of the following occurs:
Easy, go to the Home Page on this website; select the panel that aligns with your buying scenario (Established Property, Sell/Buy; Auction, Off The Plan, etc.); use the ‘Apply’ tab; and you can either complete an ‘online’ or ‘offline’ application form. If a first-time user, best if you obtain a ‘Formal Quote’ first as that will not only email you the quote, plus additional instructions to guide your through the process. but at might assist and use the ‘Obtain Quote’ tab. but at might assist and use the ‘Obtain Quote’ tab. You can also seek assistance on 1300 851 351 (BH) or 0498 888 333 or 0498 888 666 (AH).
Applicants need to decide if (a) they are seeking a Deposit Bond for a particular property purchase or
(b) looking to ultimately buy and may need to attend a number of auctions before being successful.
If (a) we’ll issue the Deposit Bond with the Buyer and Vendor names; the property location; and the deposit amount required, which is typically 10% of the maximum amount you plan to bid up to. If successful at auction, however, bids a bit more than expected and the 10% deposit amount isn’t close enough for the seller, the buyer tops up the small difference with cash. If unsuccessful at the auction and so long as the original Deposit Bond is returned to us within 30 days of issue, we’ll refund the cost of the Deposit Bond less our issue fee.
If (b) we recommend that applicants acquire an ‘open’ Deposit Bond for at least 6 months, as the reissue costs outweighs the costs of securing a 3 month Deposit Bond and then needing to extend later. We’ll issue the Deposit Bond with the Vendor, Property Address and final Purchase Price blank so that this detail can be added if successful at the initial or subsequent auctions. If the Buyer bids a bit more than expected and the 10% deposit amount isn’t close enough for the seller, the buyer tops up the small difference with cash. If the applicants aren’t successful in securing a property in the first 6 months, we will reissue for another 6 months at no bond cost, but a reissue fee of $110 applies. There is no refund as applicants are securing a Deposit Bond to give them the ability to attend and participate at an auction. The Deposit Bond can also be used for a Private Treaty / For Sale purchase.
The same concept applies whereby we issue the Deposit Bond for the number of months or to the Sunset or Registration Date in the Contract of Sale, which is a period beyond the anticipated completion date. This provides the developer with a buffer in the event the project is delayed by bad weather, lack of materials or labour or unexpected damage to the building. Yes, it means the bond fee paid upfront is more, however, read the next FAQ re ‘refunds for off the plan’ Deposit Bonds.
So long as greater than 6 months, we will pro-rata refund the unexpired period from the actual Settlement Date of the underlying Contract of Sale to the Expiry Date noted on the Deposit Bond, up to a maximum value of 18 months*. To claim the refund, we must receive (a) written proof of the actual settlement; (b) the ‘original’ Deposit Bond; and (c) within 45 days of the Settlement Date. A handling fee of $220 applies. The refund policy only applies if the purchaser(s) noted on the original Deposit Bond settle and take ownership of the noted property. The refund policy doesn’t apply if the property is on-sold during the construction period.
(*Example A, if the property settles 4 months before the Expiry Date on the Deposit Bond, there’s no refund. Example B, if we issue a Deposit Bond for 48 months and the project completes and settles at say 26 months, then the refund will be based on a maximum of 18 months and not the 22 months remaining.)
Deposit Bonds generally rely on the applicants owning mainly real estate assets in their private names, however, there are usually ways we can navigate around the issue. Best we chat about your exact scenario.
Typically, this is at the request of the seller/vendor. Simply forward us their request and we’ll reissue the bond. A $110 reissue fee applies, plus pro-rata of the original term, e.g., if the original term of 3 months has to be extended to (say) 6 months, we will calculate the bond fee for a 6 month period and deduct the amount you have already paid for the 3 month period + $110.
This mostly occurs for first home buyers where they don’t have ‘finance approved’. We’d look to a direct family member to go as guarantor. If not direct family within Australia, we may consider a close relation, like an Uncle or Aunty. Best chat about your circumstances.
Whether using cash, bank guarantee or a Deposit Bond, the net result is that the bond amount is forfeited (i.e., buyers are ‘out of pocket’) by the amount of the deposit.
The seller/vendor demands that QBE pays the Deposit Bond amount and QBE will seek recovery the bond amount (deposit amount) from the applicants/buyers.
Whilst the Deposit Bond might be supported by QBE Insurance, Deposit Bonds aren’t a form of insurance, but a form of ‘financial guarantee’.
In essence, applicants/buyers are acknowledging that they don’t have sufficient funds to pay a ‘cash deposit’ and are happy to pay a nominal bond fee to secure a Deposit Bond and pay 100% of the purchase price of the property at date of settlement. If applicants/buyers don’t settle on the Contract of Sale they have entered into, they are obligated to repay the deposit amount back to QBE, plus any other costs QBE incurs in recovery of the monies owed, plus, applicants face the risk of having the default recorded on their credit rating.