Deposit bonds explained — buying property without a cash deposit

What a deposit bond is

A deposit bond (or deposit guarantee) is a promise from an issuer — an insurer or bank — that stands in place of the cash deposit at exchange. No money changes hands up front. If you complete the purchase, the bond simply expires and you pay the full price at settlement. If you default, the vendor claims the deposit amount from the issuer, and the issuer recovers it from you.

The key mental model: a bond defers the deposit, it doesn't waive it. Your liability is identical — you've just moved when the cash appears.

When one makes sense

1. Your funds are tied up. Equity in another property, a term deposit you'd break at a cost, or a sale that settles after your purchase exchanges.
2. Long off-the-plan settlements. Rather than locking 10% away for two or three years, a long-dated bond keeps the cash working — this is the classic off-the-plan use.
3. Bridging timing gaps where finance is approved but not yet drawable.

What it costs

For a short-dated bond (a standard six-week settlement), expect a one-off fee around 1.2–1.3% of the deposit amount — roughly $1,000–$1,300 on an $80,000 deposit. Long-dated bonds for off-the-plan purchases cost more and scale with the term, and the issuer will assess you much like a lender: they're underwriting the risk that they pay the vendor and have to recover from you.

The catch: the vendor has to accept it

Nothing obliges a vendor to take a bond instead of cash. Acceptance is a contract term:

1. Check the contract first. Some contracts expressly permit bonds; some are silent; and some special conditions expressly prohibit them — a clause we see in real contracts. Silent means "negotiate before exchange", not "assume".
2. Auctions are stricter. If you plan to bid with a bond, confirm with the agent before auction day that the vendor will accept it — and have it issued and in hand when you register to bid. No cooling-off applies at auction, so there's no fixing it afterwards.
3. Developers vary. Off-the-plan vendors often accept bonds from specific issuers only, or require bank guarantees instead. Ask which, early.

Deposit bond vs bank guarantee

They solve the same problem with different machinery. A bank guarantee is issued by your bank, usually secured against your funds or property, and is more commonly demanded by developers. A deposit bond is an insurance product, quicker to obtain and typically unsecured for shorter terms. Which one you need is dictated by what the vendor will accept — not by preference.

Common questions

If I use a bond, do I still pay the deposit eventually?

You pay the full purchase price at settlement — the deposit was never handed over, so there's nothing to credit. The bond just guaranteed it in the meantime.

What happens if I can't settle?

The vendor claims the deposit from the issuer, and the issuer pursues you for the lot. A bond doesn't soften a default — the exposure is the same as if you'd paid cash, plus whatever the contract adds on top (some contracts we review demand 10% of the price as liquidated damages over and above the deposit).

Can I use a bond for the 0.25% cooling-off deposit?

The initial holding deposit paid on exchange during cooling-off is usually a small cash amount — bonds are for the balance at exchange. Practice varies, so confirm with the agent how they want it split.