What is a Deposit Bond?

The Deposit Bond is a guarantee (or bond) that substitutes for the cash deposit between signing contracts and settlement. The guarantee can be used for all or part of the deposit required, up to a maximum of 10% of the purchase price. The fee charged for a bond is based on the amount of the bond and the length of time it’s on issue (settlement period).

There are numerous situations where a potential purchaser may not have ready access to the cash deposit required to secure their ideal property, yet are genuine purchasers. Some of these situations include:
  • Where their current home is sold, however the funds are not yet available for the deposit
  • Where the purchaser does not wish to pay the penalty for breaking a fixed investment or selling shares
  • Where the purchaser may want to attend more than one auction before they decide which home to purchase
  • Where the purchaser is an investor and the loan funds are not available until settlement
A Deposit Bond can assist in all of these situations.

Having a Deposit Bond means that the purchaser does not have to pay the cash deposit when the contracts are signed. The customer however must always have the funds available to pay the deposit at the time of settlement – a Deposit Bond is not an alternative to having insufficient funds.

Unless the purchase contract is subject to finance, the purchaser must have the clear ability to complete the purchase prior to the Guarantee being approved and issued. Proof of ability to complete purchase may be in the form of
  • Loan approval/offer (subject to valuation only)
  • Copy of Offer & Acceptance (Contract of Sale)
  • Share Certificates Bank Statements
Should the intending purchaser default under the Contract of Sale and forfeit the deposit, a deposit bond will cover the amount specified in the guarantee to the stakeholder, then the bond issuer will then recover the money from the defaulting purchaser under the Counter Indemnity contained in the application (and if necessary take legal action to do so.)

Deposit Bonds can also be used for off-the-plan purchases with a term of up to 48 months

The popularity of deposit bonds varies from state to state depending on the terms on which properties are purchased but ultimately is it up to the Vendor to accept a bond in lieu of a cash deposit. In some cases, the Vendor may require the cash deposit for immediate purposes such as placing a deposit on another purchase themselves, so best to check before entering into purchase contract as to what the terms are acceptable for the payment of any deposit.

For more information on Deposit Bonds, please contact Puzzle Finance