• What is a Deposit Guarantee?

    A Deposit Guarantee acts as a substitute for the cash deposit between signing a contract of sale and settlement of a property. At settlement the purchaser pays the full purchase price including the deposit.

    A Deposit Guarantee can be issued for all or part of the deposit amount required, up to 10% of the purchase price. Redlands Mortgages can organise guarantees to be issued to purchase most types of properties with settlement terms of up to 48 months.

    There are two types of Deposit Power Guarantees available:

    • Short Term Guarantee - for settlement terms up to 6 months
    • Long Term Guarantee - for settlement terms between 6 and 48 months

     Why Use It? 

    There are many situations where a purchaser has the ability to purchase a property but may not have easy access to a cash deposit which is required when entering into a contract to purchase property.  Some typical scenarios include:

    • Homeowners selling and buying simultaneously
    • Investors borrowing the full purchase price and the loan funds are not available until settlement
    • Investors buying off-the-plan and don’t want to tie up their cash for several years
    • First Home Buyers who may not have the full cash deposit amount available when entering into a contract
    • Downsizers who are asset rich / cash poor
    • Purchasers buying at auction who may prefer the convenience of not having to put aside funds for the deposit each time they attend an auction 

     How Does It Work?

    The deposit guarantee simply takes the place of the cash deposit required in the contact. A guarantee certificate is produced which is held by the sellers representative until settlement.  

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

    Should the purchaser default under the terms of the purchase contract, the seller has the ability to claim on the deposit guarantee and our guarantor, CBL Insurance is legally obliged to pay the guaranteed amount to the stakeholder named in the purchase contract within 2 clear business days.  This process effectively puts all parties in the same position as if a cash deposit had been provided by the purchaser upfront. CBL Insurance will then seek to recover this amount from the purchaser. 

    Deposit Guarantees can often simplify the process of buying and selling property. For sellers it offers a safe alternative to securing a quick sale, particularly in situations where they are looking to buy and sell at the same time. For purchasers it provides a quick and convenient way of providing a deposit without the often time consuming and expensive options such as bridging loans, selling shares or arranging an equity release from existing property.

    The process for purchasers differs slightly depending on whether you're intending to buy at auction or make an offer on a property.

     Purchase Process

    Private Treaty/Offer & Acceptance

    1. Identify property to be purchased and negotiate price with agent/seller.
    2. Ensure sufficient purchase funds will be available for contract completion (finance approved, existing funds to be available, sale of current property).
    3. Apply for a Deposit Guarantee
    4. Deposit Guarantee issued.
    5. Sign contract and include deposit guarantee details in the contract.
    6. Deposit Guarantee given to contract Stakeholder (usually the real estate agent or sellers solicitor) as deposit commitment.
    7. Contracts exchanged (NSW only).
    8. Settlement occurs with full purchase price being paid, including the deposit amount.
    9. Deposit Guarantee expires at settlement so no further action is required.

    Auction

    1. Ensure sufficient purchase funds will be available for contract completion (finance approved, existing funds to be available, sale of current property).
    2. Identify property to be purchased and determine maximum bid based on your financial position.
    3. Obtain confirmation from the sellers agent that a deposit guarantee is acceptable in lieu of a cash deposit.
    4. Apply for Deposit Guarantee.
    5. Deposit Guarantee issued.
    6. Bid at auction up to your maximum amount and capacity to complete the purchase. If unsuccessful at auction, the process can be repeated as the guarantee remains valid for 6 months.
    7. If successful, sign contract and include the deposit guarantee details in the contract.
    8. Deposit Guarantee is given to the deposit Stakeholder as your deposit commitment under the contract in lieu of a cash deposit.
    9. Settlement occurs with full purchase price paid, including the deposit amount.
    10. Deposit Guarantee expires at settlement so no further action is required.

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