Insight

Deposit bonds in Australia: how they work at exchange, and what the 2018 Deposit Power collapse taught buyers

October 22, 2026
An empty suburban street at dusk with a sold sign in a front garden

A deposit bond solves one problem very well: paying a deposit at exchange when your cash is tied up somewhere else. It solves nothing at settlement. Most of the trouble buyers get into with deposit bonds comes from mixing those two up, or from not looking closely at who stands behind the bond.

What a deposit bond is

ASIC’s Moneysmart defines a deposit bond as something that “can be used in place of a deposit when a buyer exchanges contracts on a property. It guarantees that the buyer will pay the full deposit by an agreed date” (Moneysmart). The New Zealand Herald described it in 2018 as “a type of insurance policy that acts as a guarantee to a property seller that the purchaser will pay the deposit at settlement” (NZ Herald, 8 March 2018).

In plain terms, the vendor gets a guarantee instead of cash. If you settle, the bond lapses and you pay the full price, including the deposit amount, at settlement. If you default, the vendor can claim the deposit under the bond. The issuer will then usually look to recover that amount from you under your indemnity. A deposit bond is not a gift, a grant or a loan of the deposit. It moves the timing of a cash payment and adds a counterparty.

How it works at exchange, and what it doesn’t cover at settlement

  1. Before you sign: check the contract (or ask the agent) whether the vendor will accept a deposit bond, for what amount and until what date. Have your conveyancer or solicitor confirm this. Not every vendor or contract will accept one.
  2. Apply: the issuer assesses whether you can complete the purchase. That usually means evidence of finance approval or equity, plus your identity and the contract details.
  3. At exchange: the bond certificate is given to the vendor’s representative in place of the cash deposit. The bond’s expiry must cover the settlement date, with some margin for delay.
  4. At settlement: you pay the full purchase price from your loan and funds. The bond does nothing here. If your finance falls through, the bond doesn’t rescue the purchase. It only means the vendor can claim the deposit, and you will usually owe that amount back.

Worked example

A couple in Perth have $400,000 of equity in their current home and no spare cash. They sign to buy a $900,000 home with a 10% deposit, $90,000, and settlement in 90 days. A deposit bond for $90,000, valid past the settlement date, lets them exchange without selling first. At settlement they still need the full $900,000, plus duty and costs, from a combination of the sale of the old home, a new loan or a bridging facility. The bond bought them the exchange. It didn’t fund the purchase.

When buyers use one

  • Buying before you sell. Your deposit is equity in a home you haven’t sold yet. See buy before you sell: bridging loan vs two-stage structure.
  • Off-the-plan purchases. Settlement may be a long way off. A longer-dated bond means you don’t tie up cash for the whole build, but the longer the term, the more the cost and the issuer risk matter.
  • Funds in term deposits or investments that you don’t want to break early.

What it costs and who issues it

You pay the issuer a one-off fee. It is generally priced on the bond amount and how long the bond runs, so longer off-the-plan bonds cost more than short ones. Get a written quote and read the product terms, including what happens if settlement is delayed past the expiry date and whether the bond can be extended.

The issuer is the party that pays the vendor if you default, and its insurer or guarantor is the party that backs it. Before you rely on a bond, find out exactly who that is, where it is regulated, and whether the company selling you the bond is the issuer or just an agent. The 2018 collapse below turned on exactly that distinction.

Issuer risk: the 2018 CBL and Deposit Power collapse

In March 2018 Deposit Power, a national property finance company that provided deposit bonds, closed after the collapse of New Zealand insurer CBL Insurance, which was “an issuer and guarantor of deposit bonds”. The Australian Financial Review reported that an estimated 10,000 residential, commercial and property investors were left uncertain about the fate of nearly $300 million of deposits (AFR, 7 March 2018).

The New Zealand Herald reported that a court placed CBL Insurance in interim liquidation on 23 February 2018, on the application of the Reserve Bank of New Zealand, its insurance regulator. Deposit Power’s administrators said Deposit Power had acted as an agent for CBL Insurance and was not the issuer. CBL Insurance remained liable for valid claims, but its liquidators said it was not then in a position to pay any claims. Once interim liquidators were appointed, Deposit Power could not process new deposit guarantees (NZ Herald, 8 March 2018).

The lesson is not that deposit bonds are unsafe. It is that a bond is only as strong as the balance sheet behind it, and that the brand you deal with may not be that balance sheet. Don’t assume a vendor’s claim will be paid immediately or without dispute. Read the terms, and know who the guarantor is.

Deposit bond vs bridging finance

  • A deposit bond covers the deposit at exchange. It is cheap relative to a loan, but does nothing for the balance at settlement.
  • Bridging finance funds the purchase at settlement while you sell. It costs interest and fees, and is assessed on servicing and the sale of the existing property. See the true cost of bridging finance.

Many buy-before-you-sell transactions use both: a bond to exchange now and a bridge, or a sale, to settle later. Under APRA’s debt-to-income limit, which took effect in February 2026, bridging loans for owner-occupiers are exempt for banks that apply the exemption (APRA, 27 November 2025). Smaller banks may choose not to apply it, so policy differs between lenders.

Checklist before you rely on one

  1. Confirm in writing that the vendor and contract accept a deposit bond, for the full deposit amount.
  2. Identify the issuer and its guarantor or insurer, and check where each is regulated.
  3. Check that the expiry date covers settlement with a buffer, and what an extension costs.
  4. Have finance approval, or a clear settlement plan, before you exchange. The bond doesn’t replace it.
  5. Read your indemnity: if the vendor claims, you will usually have to repay the issuer.
  6. Check settlement-day mechanics with your conveyancer. See settlement-day shortfalls and delays.

Frequently asked questions

Does a deposit bond mean I don’t need a deposit at all?

No. It defers the deposit to settlement, when you must pay the full price. Your lender will still require its own deposit or equity for the loan.

What happens if my settlement is delayed beyond the bond’s expiry?

The vendor may be able to require a cash deposit or a new bond under the contract. Check the extension terms with the issuer and the contract terms with your conveyancer before exchange.

Can a vendor refuse a deposit bond?

Yes. Acceptance depends on the vendor and the contract, so confirm it before you sign.

If the vendor claims on the bond, do I lose the money?

Usually the issuer pays the vendor and then recovers the amount from you under your indemnity. So a claim generally means you owe the deposit amount plus any costs.

General information only. It is not credit assistance, financial product advice, legal advice or an offer of finance, and it does not take account of your objectives, financial situation or needs. Deposit bond terms, costs and acceptance vary by issuer, vendor and contract. Obtain advice from your conveyancer or solicitor before exchange.

Related reading

Sources

  1. Moneysmart (ASIC), Deposit bond – glossary, last updated 23 August 2019. https://moneysmart.gov.au/glossary/deposit-bond (accessed 22 October 2026).
  2. The New Zealand Herald, Australian home buyers hit by CBL fall-out, 8 March 2018. https://www.nzherald.co.nz/business/personal-finance/australian-home-buyers-hit-by-cbl-fall-out/XCOCPIP4VK6SOWZ6JZSZ43W3YU/ (accessed 22 October 2026).
  3. The Australian Financial Review, 10,000 property buyers caught in Deposit Power collapse (Duncan Hughes), 7 March 2018. https://www.afr.com/wealth/10000-property-buyers-caught-in-deposit-power-collapse-20180307-h0x460 (accessed 22 October 2026).
  4. APRA, Activating debt-to-income limits as a macroprudential policy tool (information paper), 27 November 2025. https://www.apra.gov.au/news-and-publications/activating-debt-income-limits-macroprudential-policy-tool (accessed 22 October 2026).