Deposit guarantee / deposit bond

In Australia, when a person or entity enters into a contract to purchase residential property it is common practice for the purchaser to lodge a cash deposit of up to 10% of the purchase price with the vendor’s solicitor as security for the purchaser’s obligations. The deposit gives the vendor (the seller) a fund against which they can claim if you fail to complete the transaction.

A deposit bond or also known as a “Deposit Guarantee” is a substitute for the cash deposit between signing contracts and settlement. It is a convenient way of securing a residential property purchase when funds are tied up. The guarantee is issued by QBE Australia Ltd to the vendor for all or part of the deposit required. A deposit bond can be issued for all or part of the 10% deposit amount required. You can only apply for a deposit bond once you have a conditional approval “subject to just a valuation”. This means once your chosen lender verifies your recently signed contract of sale and then notifies us they’ve ordered a valuation on your new purchase, is when we will organise the deposit bond for you.

So, if you fail to complete the purchase of the property as have used a deposit bond, the vendor or the holder of the deposit bond has the right to present the deposit bond to the insurer and claim the full amount of the deposit bond. The insurer will then seek reimbursement from you for any monies paid by it plus any other costs and expenses (because you have signed their ‘counter indemnity agreement’). In essence, a deposit bond enables you to defer your 10% deposit until settlement. The deposit bond is not a policy of insurance. It is a form of surety or guarantee.

Before you agree to purchase a property (or bid at an auction) you should check with the vendor that they accept deposit bonds instead of a cash deposit. You should also ensure that the vendor’s solicitor inserts the relevant clauses into the “contract for sale” to enable the deposit bond to replace the cash deposit.

For example, if you were buying a $450,000 property and the vendor insists on an upfront 10% deposit of $45,000, and you agree to provide only $15,000 once you receive your formal approval, then you can simply apply for a deposit bond through us for the difference – in this case, a $30,000 deposit bond.

Generally, you would apply for a deposit bond in any of the following circumstances:

• If you prefer to keep your savings earning interest right up until the day of settlement
• If you have sold your current home but funds are not yet available for the deposit on your next property
• If you are a first home buyer and don’t have the full 10% cash deposit required
• If you do not want to pay the penalty for breaking a fixed investment or selling shares
• If you are an investor and effectively borrowing 100% of the purchase price
• You may want to attend more than one auction before you decide which home to purchase
• If you want a cheaper and quicker solution to arranging a deposit, than securing short term finance

It’s quick and easy:         We organise the deposit bond for you online, and the deposit bond will be issued within 48 hours to your Solicitor / Conveyancer, us and the vendor’s real estate agent from QBE Australia Ltd

It’s flexible:                       Deposit bonds can be used for private sales and auction purchases. Check with the vendor of the auctioned property if they will accept a deposit bond instead of cash or a cheque before you commence bidding, and in the case of a private sale, check with the vendor before you make an official written offer.

It’s cost effective:           It only costs a one off flat fee of 1.3% of the deposit bond amount that you’re applying for (for a short term deposit bond). In the example above, a deposit bond of $30,000 would therefore only cost you $390.

The Deposit Guarantee can be issued to purchase most types of properties with settlement terms to match the needs of the purchaser. Most properties settle within 6 months or sooner but there are many other situations that require a longer settlement term, up to 60 months; for unregistered properties, vacant land, properties-under-construction and off the plan purchases.

There are two types of Deposit Guarantees available based on the settlement term:

• Short Term Deposit Guarantee – for settlement terms up to 6 months
• Long Term Deposit Guarantees – for settlement terms between 6 and 60 months