DepositSmart launches deposit bonds offering to property purchasers

Such potential purchasers have sufficient assets, such as owning an existing property or properties, and other assets, which prove they’re able to finance the eventual purchase.

For whatever reason, they may prefer to purchase a bond instead of providing a cash deposit to secure their purchase of a property.

Carey Brunel, who sold his Mortgage People business in late 2017, and Kym Dalton, who has more than 45 years’ experience in financial services on both sides of the Tasman, are offering a product that hasn’t been available in the New Zealand market for more than a decade.

The pair have an arrangement with Australia-based Deposit Power to offer its product in the NZ market, which is backed by insurance company, HDI Global Specialty SE, which received its licence from the Reserve Bank to operate in NZ in March 2021.

The insurance company has an “AA-“, or very strong, rating from Standard & Poor’s, while Deposit Power has been operating in Australia for more than 30 years.

The bond product the DepositBond business is offering provides 10% of a property’s value as a deposit for someone planning to purchase that property, who has the ability to prove they’re good for both the deposit and the purchase price of the property.

Brunel cited the example of a couple in their late 70s who wanted to buy an apartment in Auckland with a purchase price of $4 million.

That couple already owned a residential property, which they were planning to sell to finance the purchase, as well as other investments.

Their bank had turned down their application for bridging  finance, essentially on the basis that they were too old and were no longer employed and so didn’t have the earnings to support such a loan, even though their assets far exceeded the amount they were seeking.

Brunel says customers in this age bracket often face delays of several weeks to be turned down when they seek bridging finance, even when the bank knows at the outset it is not going to provide finance.

The new DepositSmart business would provide such a customer with the $400,000 deposit bond for three months at a cost of $7,500, considerably less than the estimated $12,700 that their bank would have charged, even if it had agreed to finance the transaction.

Brunel says banks are harming such customers by not telling them immediately that they don’t fit the bank’s criteria and won’t get the bridging loan they’re seeking.

Brunel says the product DepositSmart is offering won’t suit every property owner but that it can make transactions possible that the major banks refuse to finance.

DepositSmart is offering two types of bonds, one of up to six months to purchase an existing property, or one of up to 5.5 years to purchase an off-the-plan apartment.