A deposit bond is a certificate that can be used in place of the cash deposit between signing contracts and settlement of the property purchase. The deposit bond replaces the need for a 5% or 10% cash deposit when contracts are exchanged.
A deposit bond is ideally suited to those purchasers who do not have the required cash deposit, but they have the financial capacity to purchase the property. Deposit bonds enable the purchaser to pay the full purchase price at settlement, instead of paying a cash deposit upfront. For example, if you are buying a property for $500,000, you usually have to pay an initial deposit of 10% being the $50,000, with the remainder of $450,000 due at settlement. With a deposit bond, you only pay a one off fee for the deposit bond certificate, in this case $650, and secure the title to the property. At settlement you pay the full contract price of $500,000.
Deposit bonds can be issued for up to 10% of the purchase price on most types of property with settlement terms of up to 48 months.
There are many scenarios when a purchaser may need a deposit bond to assist in securing their new home or investment property. Purchasers often find themselves in a situation where they have the ability to settle on a property, however may not have the cash readily available to put a deposit down. Some common scenarios include:
Deposit bonds are ideal for purchasers who are asset rich but cash poor or for purchasers who simply don't want to use their own cash savings until settlement.
There is no maximum deposit bond amount. Deposit bonds can be issued for all or part of the deposit amount required, up to a maximum of 10% of the purchase price.
No. A deposit bond is a certificate that represents the deposit amount that is held by the vendor or seller until the purchaser takes ownership of the property (or when the title is transferred from the seller to the purchaser). At this point, the purchaser has to pay the full purchase price for the property. So what the deposit bond does is allows the purchaser to delay the payment of the cash deposit until the purchaser takes ownership of the property.
There are two types of deposit bonds, a short term deposit bond for settlements up to 6 months, and a long term deposit bond for settlement terms of up to 48 months. Approval requirements for each of these deposit bond types vary depending on the given scenario.
Deposit bonds can be issued for most situations and types of properties including first homebuyers, investors, simultaneous settlements and for existing property, vacant land, off-the-plan purchases, auctions and private treaty purchases.
This term is used when referring to a title for established properties where the land has been registered with the Land Titles Office (or similar department, depending on the state) and have therefore been assigned a “Lot” and “DP”/”SP” number (DP = Deposited Plan, SP = Strata Plan). These details will be noted on the contract of sale in the Land section and in most cases will result in a specific settlement date being scheduled. Registered properties generally have a settlement date within 6 months from the contract date. In this scenario, a short term deposit bond is ideal for securing a registered property.
Unregistered, properties are incomplete land titles and are therefore not ready to be registered with the Land Titles Office (or similar department, depending on the state).
This is common when purchasing off the plan apartments and in some cases vacant land and will be clearly noted as unregistered in the contract of sale in the Land section. In regards to off the plan, as the construction is ongoing, a specific settlement date is unable to be provided from the vendors and instead a “Sunset” or “Registration” date will be noted in the contract of sale. Unregistered properties usually require a long term deposit bond in order to fulfil the deposit clause in the contract of sale.
In some circumstances we may request that parties, who are not listed as purchasers in the deposit bond application, to complete a Guarantee & Indemnity form. Completing the Guarantee & Indemnity form ensures that all parties including guarantors are fully aware of their obligations.
Guarantor parties fall into the following categories;
When a Company (including a Company as Trustee for a Trust) is applying for a Deposit Power Deposit Bond, in addition to authorising the Company to purchase the deposit bond by completing the application form. Company Directors will also be required to complete the Guarantee & Indemnity form.
At Deposit Power we understand that many people get their start in the property market with help from their family. In situations where first home buyers would normally be ineligible for a deposit bond, we are usually happy to consider an application where an immediate family member will act as a guarantor. To act as a guarantor, family members need to own existing property/ies with sufficient equity to satisfy our requirements. Family members acting as a guarantor are required to complete the Guarantee & Indemnity form.
Applicants can either apply directly on this website or through an accredited Deposit Power mortgage broker, conveyancer, lender or finance specialist.
Should the purchaser default under the contract sale, the seller may lodge a claim on the deposit bond for the deposit amount. Upon receipt of a claim, Deposit Power as Authorised Manager for the Guarantor, assesses the claim and if valid, instructs Perpetual Corporate Trust Limited to make payment to the deposit holder noted in the contract of sale. Deposit Power will then seek to recover the deposit amount from the purchaser.
A long term deposit bond can be used to secure residential property sold off the plan, under construction or vacant land where an extended settlement period is required.
Using a deposit bond in lieu of a cash deposit when buying off the plan will allow a buyer to retain their cash in savings or other investments such as shares right up until settlement.
As property developments can often experience delays beyond the vendors control, it is standard practice for a “Sunset” or “Registration” date to be inserted into the Contract of Sale in lieu of an actual settlement date. This date indicates when the property must be registered by (without which settlement cannot occur).
The Sunset/Registration date is usually found in the Special Conditions of the Contract of Sale and dictates the term a deposit bond must be issued for. As with any contract, each clause should be read in the context of the entire contract and we therefore recommend that you refer to your legal representative when trying to determine the Sunset/Registration date (some contracts may contain wording or additional clauses that effectively extend this date). These types of property purchases usually require a long term deposit bond.
Yes. A deposit bond is ideal for auctions and is issued prior to the purchaser attending the auction. The maximum deposit bond amount is shown on the deposit bond certificate whilst the seller, property details and purchase price are left blank. This is done so a purchaser can attend and bid at a number of auctions with the one deposit bond certificate. The seller and property details and purchase price are completed on the deposit bond certificate when the purchaser is the successful bidder and the final purchase price has been determined.
The deposit bond amount is limited to the maximum amount of guarantee shown on the certificate or 10% of the purchase price whichever is the lesser.
Yes. We understand that depending on negotiations between purchaser and vendor, deposit amounts can vary anywhere between 1% up to 10% of the purchase price. We also know that at other times, a purchaser may want to split their deposit between cash and a deposit bond. Deposit bonds are designed with this flexibility in mind.
The deposit bond is legally valid and available in all states and territories in Australia. Deposit bonds are widely accepted as a cash deposit substitute. Deposit Power has been issuing deposit bonds in Australia for over 30 years and our product is very familiar and acceptable to estate agents, solicitors, conveyancers and sellers (vendors).
All deposit bonds have an expiry date. A deposit bond expires on the earliest of when:
Yes. The deposit bond certificate represents the deposit until settlement and does not remove the purchaser’s obligation to pay the full purchase price to the seller at settlement.
Deposit bonds are issued on the understanding that the purchaser remains responsible for the deposit amount that is being guaranteed by Deposit Power. Signing and agreeing to the Counter Indemnity and acknowledgement in the application form is the purchaser’s acknowledgement of their responsibility and liability in the event that they default under the terms of the Contract of Sale.
In simple terms, should the purchaser default under the purchase contract and the seller makes a claim, Deposit Power on behalf of the Guarantor will seek repayment of the claim amount from the purchaser.
Deposit Power charges a one-off fee to issue the deposit bond certificate. There are no other fees or ongoing charges involved.
The fee for a short term deposit bond (with a term of up to 6 months), in most cases, is calculated as a flat percentage of the deposit bond amount. Fees for long term Deposit Bonds are based on the deposit bond amount and term required.
Fees for all types of deposit bonds can be obtained by clicking on the “Get a Quote” button on the top right hand side of this web page.
Refunds for short term deposit bonds will only be provided where the deposit bond has not been used (provided to the vendor/s) and the original deposit bond certificate has been returned to Deposit Power within 30 days of the date of issue. An administration fee of $220.00 will be deducted from any refund amount that relate to short term deposit bonds.
For long term deposit bonds, a refund will be considered where the deposit bond has not been used (provided to the vendor/s) and the original deposit bond certificate has been returned to Deposit Power within 30 days of the date of issue. An administration fee of $700.00 will be deducted from any refund amount that relate to long term deposit bonds.
A rebate may be considered for long term deposit bonds in the event the purchase/property settles and the original deposit bond certificate is returned to Deposit Power with at least 6 months remaining before the deposit bond expiry date. To apply for a rebate the applicant must return the original deposit bond certificate with a covering letter from the vendor’s solicitor confirming the date the property settled. In order to qualify for a fee rebate, both the original deposit bond certificate and the solicitor’s letter must be received by Deposit Power at least 6 months prior to the expiry date of the deposit bond.
In the event that the purchaser defaults under the terms of the contract of sale, the seller may be entitled to make a claim on the deposit bond. To make a claim, the seller or their legal representative must provide certain information and documents. The term and conditions of the deposit bond are contained on the reverse of the deposit bond certificate and can also be obtained here.
To ensure a local, timely and independent claim process, a custodial fund has been established with Perpetual Corporate Trust Limited (Perpetual) to be used solely for the payment of deposit bond claims.
As the Authorised Manager of the Guarantor, DP Bonds Pty Ltd (Deposit Power) is authorised to accept, assess and instruct Perpetual to pay valid claims. Nominated parties from Deposit Power are listed as having sole authority to instruct Perpetual to make payment. Such authority to instruct Perpetual is made independently of and without reference to the Guarantor of the Deposit Power deposit bond, Lombard Insurance Company Limited.
Claim payments are made within 2 clear business days of a valid claim being received.
Lombard Insurance Company Limited (Lombard) is the Guarantor of the Deposit Power product. They are an international trade and commercial insurance provider who have been providing capacity to the Australian insurance market for over 10 years.
To ensure a local, timely and independent claim process, Lombard have established a custodian fund with Perpetual Corporate Trust Limited (Perpetual) to be used solely for the payment of deposit bond claims.
As the Authorised Manager of the Guarantor, DP Bonds Pty Ltd (Deposit Power) is authorised to accept, assess and instruct Perpetual to pay valid claims. Authorised staff at Deposit Power have sole authority to instruct Perpetual to make payment. Such authority to instruct Perpetual is made independently of and without reference to Lombard.
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