What should brokers know about deposit bonds

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    In the current property market where demand outstrips supply, buyers are at risk of missing out on a purchase if they aren’t finance ready. But for those purchasing before selling their existing property, organising a redraw facility, a bridging loan or a bank guarantee could prove to be a timely exercise, according to Grant Bailey.

    The general manager of Deposit Power told MPA that a deposit guarantee was an alternative option that brokers should consider.

    “In the current environment, where there’s a lot of asset-rich, cash-poor upsizers and downsizers, the Deposit Power product is a product brokers should be putting forward to real estate agents,” he said. “We can approve and issue those bonds in the same day we receive the application.

    “One of the things that makes Deposit Power unique is we have a smart online system. With our online process it has the underwriting effectively built into the system. Literally, after you spend 15-20 minutes entering the information into the system you get a decision on the spot – you can literally buy the product on the spot.”

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    Customers must meet either of two basic qualifying criteria in order to get approval for a deposit bond. The first is demonstrating they have the funds to complete the property transaction through a loan approval. The second is through equity in an existing property.

    Bailey said there were two different types of deposit guarantee at Deposit Power – a short term product of up to six months for an existing registered title property, and an extended term product for off-the-plan purchases, including unregistered property, unregistered land or apartments being built.

    “The short-term registered title product up to six months is 1.3%,” he said. “It’s just a flat fee, so a deposit for $50,000 will cost $650. There’s no security taken, which is one of the advantages of the product.”

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    The cost of the off-the-plan product depends on the length of the term required, he said.

    While deposit bonds come with many advantages in a fast-moving property market, there are a few things that brokers and buyers need to be aware of according to Mortgage Choice. The first is that not all agents will accept a deposit bond. Since real estate agents are usually paid their commission through the deposit, they may want quicker access to the deposit than this option can provide. Some vendors may also need earlier access to the deposit in order to secure a new home for themselves.

    It’s important to remember that unless prior consent from the vendor has been provided in writing, using a deposit bond may be in breach of the contract term, added Mortgage Choice.

    Kate McIntyreKate McIntyre is an online writer for Mortgage Professional Australia. She has a wealth of experience as a storyteller and journalist for a range of leading media outlets, particularly in real estate, property investing and finance. She loves uncovering the heart behind every story and aims to inspire others through the artful simplicity of well-written words.
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