If you would like to buy another property, but don’t have the 10% deposit, there may be other options available to you to secure a deal
Whether you are an investor with a substantial amount of equity in your current home, though do not have a cash deposit for another property, or whether you are retired and wish to downsize from the family home you have lived in for 40 years and have no cash reserves, (“have all your eggs in one basket”) there may be options for you to secure another property. It all depends on what the Vendor is prepared to accept.
Below we’ve set out some of the options:
5% Cash Deposit
If you have less than the normal required 10% of the purchase price as your deposit, you can request that we ask the seller approve a 5% cash deposit. This is a commonly asked question, and is quite often granted.
A Deposit Bond is a Certificate of Deposit Guarantee issued in favour of the Vendor, equivalent to 10% of the purchase price. No money actually changes hands on exchange of Contracts when a Deposit Bond is used. There is a fee for the approval and issue of a Deposit Bond, which is paid by you as Purchaser and calculated at 1.3% of the value of the deposit being guaranteed (if the term of the Guarantee is up to 6 months).
If the use of a Deposit Bond is approved by the Vendor, a Special Condition is usually annexed to the Contract.
This method has advantages if you are purchasing for one of the following purposes and wish to avoid expensive bridging loans:
When you are buying and selling simultaneously
Upgrading or downsizing
Buying your first home
Buying an investment property
Buying a new home or house/land package
Buying vacant land
A Deposit Bond is simply insurance for the Vendor.
A Bank Guarantee is an alternative to providing a deposit or Bond directly to a vendor. It is an unconditional undertaking given by your bank, to pay the recipient of the Guarantee the amount of the Guarantee on written demand.
A Bank Guarantee is secured by an asset. For example, security over your existing property already held by the bank, or a Fixed Term Deposit equal to the value of the Guarantee.
Bank Guarantees allow you to enter into Contracts for the same purposes as listed above, without depleting your personal savings or tying up working capital. They are most helpful when purchasing off-the-plan when construction and settlement is not required for some time.
We are happy to provide you with further information regarding some of the features of each of the above forms of deposit.
In a nutshell, you don’t necessarily have to have 10% deposit to buy a second home, or an alternative home, providing you have equity in other forms that can be utilised (“asset rich, cash poor”). This is comforting to know when the property market moves so quickly and you fear you may miss out.
We can also help your sale and purchase coincide so that you only have to move house once! With careful handling and good communication between the parties and the agents, we can assist in settling you into your new home with less stress than you may have anticipated.