300% surge in deposit bond inquiries: Deposit Power

Recent data released by deposit bond provider Deposit Power has revealed a 300 per cent increase in inquiries for deposit bonds on home purchases over the calendar year of 2023.

The data showed an increasing number of inquiries coming from first home buyers and families looking to safeguard their money as the construction industry faces ongoing challenges. According to Deposit Power, there were as many as 2,000 companies going into liquidation in the last two years alone.

Furthermore, according to Deposit Power’s internal data, there has been a 40 per cent increase in retirees using their bonds to downsize and a further 10 per cent increase in people downsizing for “lifestyle reasons including reducing their mortgage”.

General manager of Deposit Power, Brent Davidson, said there is often a spike in deposit bonds during “tough economics times”.

“We are seeing a repeat of what happened during the global financial crisis with younger people downsizing, often to a suburb a little further out, to reduce their mortgage,” Mr Davidson said.

“With the huge number of collapses in the construction industry, home buyers are turning to deposit bonds for their new build.

“They’re seeing this no cash down solution as a safer option. If the developer goes under they wouldn’t lose their deposit.”

As such, the deposit bond provider is now preparing for “a surge of new customers” as rate hikes are showing signs of increasing further and home owners “see greater value in keeping their cash in the bank”.

“Instead of paying the traditional 10 per cent cash at contract exchange and then 90 per cent at settlement, customers secure the purchase with a deposit bond and pay 100 per cent at settlement, only paying a one-off fee to issue the bond, on average around 1.3 per cent of the deposit amount,” Mr Davidson said.

“In the past deposit bonds have often been the domain of investors but owner-occupiers are utilising them more often investing their cash and growing their wealth, that would have been tied up in a deposit if it had not been for the bond.

“The bank of mum and dad is often there for some but finding the cash deposit can be tricky so deposit bonds are also becoming popular among first home buyers.”

[RELATED: Deposit Power-backed start-up secures $3.75m in seed round]