Deposit bonds provide purchasers a quick and convenient way of accessing a deposit without having to arrange other time consuming and expensive options such as bridging loans, the sale of shares or an equity release from existing property. The deposit bond takes the place of the cash deposit required in the contract of sale. A bonds certificate is produced which is held by the sellers’ representative until settlement (usually their solicitor or conveyancer).

At settlement the purchaser simply pays the full purchase price including the deposit amount at which point the guarantee becomes void.

Deposit bonds apply equally at auctions as they do for private sales, but we suggest you speak with your Master Builders Financial Services Credit Advisor for full details. Deposit bonds are available to people living and residing permanently in Australia. These include individuals, first homebuyers, retirees, the self-employed, trusts, corporate entities or SMSF purchasing residential or commercial real estate.

As a Master Builders member, you are able to refer your prospective property customers to the Financial Services department; we will be happy to arrange the deposit bond and the finance so your clients can purchase your property and you can be sure your client has professional assistance in arranging their finance. This gives them the best chance to purchase the property and gives you the lowest chance of the finance and therefore the sale ‘falling over’.

Buying a home or your principal place of residence

Deposit bonds can be used to purchase most types of residential property including:
• Established properties such as houses, units, townhouses and villas
• House and land packages
• Vacant land (registered and unregistered)
• Properties under construction
• Off-the-plan properties.

First-time home buyers

A deposit bond can be particularly helpful to home buyers preparing to buy their first property particularly when they may not have the full cash deposit available to them when entering into a contract to purchase. If the vendor requires a full 10 per cent deposit but the buyer does not have immediate access to cash, a deposit bond can help secure the property. This also applies when the home buyer is seeking help from family with their deposit or for family to act as guarantors of a home loan.

Another benefit is for first home buyers who may not be able to afford the deposit without an applicable government grant, which cannot be accessed until settlement. A deposit bond is an effective way to help manage this process.

Investment property purchasers

Deposit bonds are a great tool for investors looking to defer payment of the cash deposit until settlement, particularly when they are borrowing 80 to 100 percent of the purchase price. Investors are able to purchase most types of residential and commercial property using a deposit bond.

New home and land buyers

Deposit bonds can be used to purchase new homes andboth registered and unregistered vacant land that will be registered in the future. Talk to Master Builders Financial Services to learn more about the terms and conditions associated with unregistered land.

Commercial Property Purchasers

Deposit bonds can be used to buy commercial- or business-use properties such as individual factory units, retail, office and storage space, commercially zoned vacant land and general business premises.

Individuals, companies, trusts or self-managed superannuation funds (SMSFs) can purchase commercial properties up to a deposit guaranteed amount of $200,000.

Commercial property applicants must be able to provide documentary evidence of their ability to complete the purchase, such as an unconditional loan approval and/or other funds to complete the purchase, such as bank account statements, shares or sale proceeds from another property.

Companies and trusts

At Master Builders Financial Services, we are well versed in assisting companies and trusts with their property purchase needs using a deposit bond. Beyond some additional documents we require to confirm authority of directors or trustees, the process, cost and requirements are almost identical to those for an individual.

Self-managed super funds (SMSFs)

Deposit bonds can also provide a deposit guarantee for self-managed super funds (SMSFs) who are looking to purchase investment property. Due to SMSF regulations, the property in question must be income-producing and therefore cannot be under construction or vacant land.

The deposit bond can be issued up to 10 per cent of the purchase price to a maximum deposit amount of $500,000. A term of six months or less is standard, however longer terms may be considered on an individual basis (subject to separate acceptance and fee structure).

With regard to the application process, an SMSF-specific application will need to be completed and an acceptable trust deed will need to be provided confirming the trust’s ability to borrow and purchase property as part of its investment strategy. In addition to providing evidence of the funds to complete the purchase, at least one beneficiary/member of the trust must also own existing property.

In the coming six months, some pre-approved customers may have their pre-approval re-assessed by their bank and have their finance rejected, due to tightening lending criteria. In order to help minimise the chances of this happening to you, I suggest you send any prospective purchasers to Master Builders Financial Services where you can rest assured your clients will be given one of the best opportunities to have their loans approved.

–Harry Pontikis, Manager MBA Financial Services

Chocolate Money holds an Australian Credit License – 387 277 and t/a Master Builders Financial Services.

Disclaimer: The information provided is not to be considered as specific advice as your situation has not been taken into consideration. Call Master Builders Financial Services on 1300 137 539 for more specific information.