Aussie Deposit Bonds, at a glimpse
Residential, Commercial, Vacant Land, Land & House Packages
Individuals, Super funds, Trusts, Companies
Soft copy, 1 business hour
Original bond, Express Post same day
Bonds out to 66 months
Refund on bonds that settle early (conditions apply)
No accreditation required
High level authority
Faster & smarter option than cash or bank guarantees
It's when Aussie Bonds says 'no', you know all options have been canvassed. We rarely say no!
A Deposit Bond is a form of guarantee accepted by Vendors in lieu of cash 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.
Typically, Vendors require up to 10% of the purchase as a deposit. In some incidences, Buyers may be able to negotiate a lesser percentage.
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 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 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.
Using a Deposit Bond avoids the need to use own cash or a bank guarantee.
As to who can apply, any Australian permanent resident or those with permanent visas, trusts, self-managed super funds, registered business entities looking to purchase Australian based residential or commercial real estate, including vacant land.
Those that use Deposit Bonds typically have existing real estate but don’t have the ready cash to use as a deposit on another property, albeit short-term ‘established’ property settlements or long-term ‘off the plan’ purchases.
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.
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.
- A Deposit Bond can never be for more than 10% of the purchase price and can be less than 10%, if the Buyer has negotiated a lesser amount or, in some situations, the Buyer prefers to use part cash and the balance as a Deposit Bond.
- The Buyer has sufficient net equity/worth to support the amount of the Deposit Bond sought.
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 overnight or first thing the next business day.
If paying by EFT, we have to wait up to two (2) business days for the EFT to clear, so applicants need to allow for this delay if seeking a Deposit Bond by a particular date.
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.
Simply put your request in an email (so we get the revised date correct) and we’ll reissue the bond. A reissue fee applies of $110, plus pro-rata of the original term,e.g., if the original term of 3 months has to be extended to (say) 4 months, due to a delayed settlement, we will calculate the bond fee for a 4 month period and deduct the amount you have already paid for the 3 month period + $110.
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.)
Applicants need to decide
if (a), they are seeking a Deposit Bond for a particular property purchase or
if (b), unsuccessful at that auction, they plan to remain in the market to purchase an alternative property.
If (a), we’ll issue the Deposit Bond with the Buyer and Vendor names; the property location; and the amount of the bond required. If the Buyer bids more than expected and the 10% value of the Deposit Bond isn’t sufficient, the Buyer tops up the difference with cash. If unsuccessful at the auction, 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 a Deposit Bond for at least 6 months as the reissue costs outweigh the costs of securing a 3 month Deposit Bond. We’ll issue the Deposit Bond with the Vendor and Property Location blank so that this detail can be added if successful at the initial or subsequent auction. If the Buyer bids more than expected and the 10% value of the Deposit Bond isn’t sufficient, the Buyer tops up the difference with cash.
Deposit Bonds originated in 1987 and are now universally accepted Australia wide.
Indeed, some Vendors, Property Developers and Lenders will insist on QBE Deposit Bonds only due to QBE’s track record and their unique and important S&P A+ rating.
Deposit Bonds primarily rely on the applicants owning assets in their private names. If all assets are held in a Trust, we can’t assist. If part assets held in the Trust, we can look to the net equity of the assets in the Trust, if there’s a short fall in the required net equity from assets privately held.
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, 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 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.
Let’s use the example of a $500,000 property purchase. The process is the same for both short term settlements involving established property (say 3 months) or long term settlement involving off the plan settlements (say in this example, 24 months).
Option 1. If using cash, $50,000 is paid upfront and the remaining $450,000 at the time of settlement.
Option 2. 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 to secure the issuance of the $50,000 bank guarantee. At settlement, $500,000 is paid to settle the purchase and the bank guarantee is released.
Option 3. If using a Deposit Bond, the Buyer pays approximately $500 for a $50,000 Deposit Bond for a 3 month settlement or $3,200 for a 24 month settlement; Aussie Bonds Australia issues a Deposit Bond on behalf of QBE and similar to a bank guarantee, at settlement, $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 obtain the $50,000 cash; nor have the bank take extra security over your assets to secure a bank guarantee.
As with any legal document there are terms, conditions & obligations. You seek professional advice to ensure what you are agreeing to. The key three relate to (a) the applicants providing accurate information; (b) privacy of the information you provide but the authority to carry out relevant checks with other agencies, such as your finance providers, your credit history, etc., & probably the most important, (c) that the applicants remain responsible and liable for the deposit amount issued by way of the Deposit Bond issued (meaning that if the applicants fail to settle on the Contract of Sale, they remain liable to repay this amount to QBE.
The Buyer will forfeit their 10% deposit, so the net outcome with all three options outlined below are the same.
With Option 1., above, the Vendor simply retains the $50,000 cash deposit and the Buyer is ‘out of pocket’.
With Option 2., above, the Vendor demands the bank pays the bank guarantee amount of $50,000 and the Buyer is ‘out of pocket’ and has to repay the line of credit or overdraft.
With Option 3., above, the vendor demands that QBE pays the Deposit Bond. QBE will then ask the Buyer to repay the $50,000 paid to the Vendor.
So, as stated above, the outcome is the same. The Buyer loses their $50,000 deposit.
Note. Deposit Bonds are a form of financial guarantee and just because they are issued by (in our case) QBE, Deposit Bonds are not an insurance policy. In the event of not settling on a Contract of Sale, Buyers can’t simply walk away from a Deposit Bond. As part of the application form and process, the Buyer also acts as a Guarantor and agrees to indemnify QBE in the event the Deposit Bond is called by the Vendor as a result of a failure to settle/complete the Contract of Sale. The Buyer must repay QBE the $50,000 and any legal costs incurred; plus face the risk a default listing on their credit rating.
- Don’t have to find upfront cash;
- No need to convert existing assets or investments into cash or secure extra finance and resulting costs;
- Doesn’t tie up working capital for other potential investment opportunities;
- Whilst the risk is greater with longer term settlements, buyers aren’t faced with the risk of not being able to recover their cash if the Contract of Sale becomes null & void. In some cases, the Vendor may use the cash deposit as their cash deposit on a subsequent new purchase or the developer may use cash deposits for off the plan purchases as working capital. In the event of a developer going under; the project not completing; the Contract of Sale becoming null & void; the worst case scenario of using a Deposit Bond is that the Buyer loses their Deposit Bond fee. Using the example above in Option 3., the difference is $3,200 fee versus $50,000 cash; and
- If the property purchase is for an investment property, the cost of the Deposit Bond can be claimed as an expense in the first year of rental income.
Buyers need to demonstrate financial capacity to settle on the Contract of Sale at the agreed settlement date.
If the Buyer has ‘unconditional finance approved’ as part of their application, we simply need a copy of the main page of the Contract of Sale; photo ID; and evidence of the ‘unconditional finance approved’. We rely on the fact that the funder has completed full assessment so as to provide the ‘unconditional finance’.
If the Buyer has no finance approved at the time of application (funders are limited to providing ‘unconditional finance’ above 120 days), then essentially, the assessment process isn’t dissimilar to that of the retail banking procedure and we require additional support documents. We assess:
- The Buyers’ income must be able to service all existing and proposed commitments. Where the property purchase is for rental purposes, we also include the likely level of rental income as part of the total income available to service the combined commitments.
- The Buyers must prove adequate net equity ownership in suitable assets, predominately Australian based real estate. Where Buyers don’t have sufficient net equity (say a first home buyer or younger individuals or couples still developing higher net equity levels), we can look at third parties going as personal guarantors or using caveats on existing real estate. We need to consider each Buyers circumstances at the time of application.
- Our extensive experience. Indeed, one of our executives was part of the team that created the Deposit Bond product way back in 1987 and has been continuously involved in Deposit Bonds since. The other executives have Deposit Bond experience dating back to 1990.
- Our determination to explore possible solutions for applicants that don’t initially meet the acceptance criteria. Whilst we won’t risk our special status with QBE, we will explore possible options.
- Our pricing is competitive and we’re told by Buyers and Mortgage Brokers that savings can be multiple hundreds.
- If we have complete documentation, we can issue a Deposit Bond with an hour or so; same business day if by 4pm Sydney time; otherwise overnight or first thing the next business day.
- We provide afterhours support as we acknowledge that many property inspections occur on weekends and potential buyers are keen to start exploring cost and doing their maths. In addition, our underwriters are available 24/7, less sleep time to assist on any assessments or existing case files.
As a busy suburban solicitor, I am very familiar with the stress surrounding clients purchasing property. The professionalism demonstrated by Aussie Bonds Australia, on repeat occasions, has helped to remove a large amount of client stress in helping to secure their Contract of Sale within tight cooling-off periods.
- Mitchell Reece & Associates, Jannali NSW
Thanks Aussie Bonds for assisting us to sort our ‘off the plan’ purchase. In comparison to others we approached, your guidance and support was amazing. Plus we benefited from your competitive pricing and fast turnaround when we were caught short.
- Vic & Emily Cabaleri, Balmain
It is such a refreshing and pleasant experience to do business with a company that gives great customer service. My dealings with Aussie Bonds have been exceptional … efficient, professional and patient.
- Sue Alexander, Licensed Real Estate Agent, Northern Beaches, Sydney
Aussie Bonds delivers on or often above expectations, which is remarkable to me. How do you create an environment & culture that aims for excellence and continually delivers beyond expectation. Your company is unmatched in the Deposit Bond space.
- Erik Reurts, Blue Tongue Finance, Sydney
In my previous mortgage broker role, I was locked into an alternative arrangement. Now I’m free to compare and the difference is stunning! I’m impressed. My clients are impressed.
- Russell Newell, Dynamic Home Loans, Sydney
I’ve been in the development industry for decades. Our company shifted towards residential construction some 12 years ago. In all that time I’ve never come across a service provider that offers your firm’s consistent level of service. Thank you.
- Dr Nicholas Girdis, Girdis Group, Brisbane
I’ve been in the real estate and project marketing industry for many years and have dealt with many support organisations and nothing gets close to Aussie Bonds. Sure, big words, but you can’t hide from the facts. Aussie Bonds has made my task a whole lot simpler. I’m not surprised to hear my clients & their friends keep going back to Aussie Bonds for more bonds.
- Rodney Blackmore, Colliers, Sydney
I'd like to thank you sincerely for the excellent service you provided me with recently in obtaining a Deposit Bond which has secured for me a wonderful, and I'm sure a happy home for my future. As I was very anxious that I didn't miss buying the property I applied 'out of hours' and your quick response (even though you were lunching with friends!) was of invaluable assistance to me. So, to you and your excellent staff who helped me so professionally and efficiently, I'd like to say a BIG thank you!
- Chris Graham
The Aussie Bonds team knows the meaning of a great customer experience. Combined with quick decisions, they really make obtaining a Deposit Bond easy. Aussie Bonds are our only choice for a Deposit Bond.
- Peter Gomer, Mortgage Direct, Sydney