What is a deposit release bond?
A deposit release bond is issued by a specialist insurer for the benefit of the purchasers on a development. It lets the developer use their deposits during construction instead of leaving them held until completion.
The problem it solves
When a buyer exchanges on an off-plan home they pay a deposit, often around 10% of the price. Normally that money is held by a solicitor until the home completes, which can be a year or two away.
Across a scheme those deposits add up to a significant sum, and it sits idle while the developer funds the build with borrowed money. A deposit release bond lets that money go into the build instead.
How the bond changes that
The sale contracts allow the deposit to be released to the developer, and the bond protects the buyer. If the developer cannot finish the home, for example through insolvency or abandoning the scheme, the purchaser claims their deposit under the bond. The bond wording sets out exactly what is covered and when.
Who is protected
The purchasers. Each buyer whose deposit is released receives a certificate confirming their deposit is covered by the bond. The developer pays for the bond and provides the security the insurer asks for, but the protection is for the buyers.
When deposits can be released
- The bond is in place for the scheme.
- The sale contract provides for the deposit to be released.
- Any conditions in the agreed terms have been met.
Released deposits must be spent on the development. How much of each deposit can be released depends on the scheme and on the underwriter's terms, which we confirm when we quote.
How the parties fit together
The developer
Takes out the bond, pays the premium, provides security and uses the released deposits on the scheme.
The insurer
Underwrites and issues the bond. It is the insurer that stands behind the buyers, not us.
The purchasers
The beneficiaries. Each receives a certificate and can claim under the bond if the developer fails.
The solicitors
Deal with release under the sale contracts and check the certificate is in place for each plot.
We arrange the bond. We take the scheme to specialist insurers, work through their underwriting and security requirements with you, and stay involved until the bond is released at the end of the scheme.
How it compares with more borrowing
Mezzanine and bridging finance add new debt to a scheme. A deposit release bond uses money your buyers have already paid, with the bond standing behind them. Many developers use it alongside senior debt as an alternative or supplement to mezzanine, and the cost is typically a fraction of it.
Indicative figures. Your terms confirm the exact rate and how it is applied to your scheme.
We will set the cost out next to your other options so you can compare them properly.