An Australian deposit bond provider has urged brokers, conveyancers and real estate agents to question the strength of deposit bonds if they want to protect their clients.
Deposit bonds can be used by property buyers who do not have the necessary deposit. Typically, this might be because their equity is wrapped up in the property they are selling.
Director of Deposit Assure, Etienne Rizzo, said with the tightening of banks’ lending criteria deposit bonds were even more in demand. What was once a quick turnaround to draw down their equity or refinance, is now becoming a weeks’ long process.
Rizzo is encouraging brokers to offer deposit bonds as a solution to clients to build trust and add value to relationships.
Deposit Assure provides deposit bonds backed by QBE Insurance (Australia) Limited, which has been underwriting deposit bonds since 2000.
For those offering the product, he has listed three things brokers must think about to make sure the deposit is strong.
The deposit bond underwriter has a strong credit rating and is APRA regulated
He said, “Look for A+ stable from a reputable credit rating agency, such as Standard & Poor’s and Moody’s. An increasing number of property contracts stipulate the use of a deposit bond provider with an Australian-based underwriter, who is regulated by the Australian Prudential Regulation Authority (APRA). This provides another level of comfort to vendors and purchasers alike.”
The provider has a strong track record of paying claims
He said, “Past behaviour is often an indication of future behaviour. Where an underwriter has a track record of paying valid claims, vendors and purchasers can take comfort that claims will be paid when needed.”
The underwriter is based in Australia
He said, “This is important because an Australian-based insurer is answerable to the Australian legal system.”