Buyer’s guide · NSW
Deposit bonds: how they help home buyers
A deposit bond lets you buy property without paying a cash deposit on exchange. Learn how deposit bonds work in NSW, when sellers accept them and the risks.
Updated October 2026 to reflect current law.
A deposit bond lets you buy a property without paying the deposit in cash when you sign the contract. Instead, a bond issuer promises to pay the seller the deposit if you do not complete the purchase. You pay the full price, including the deposit amount, at settlement.
Deposit bonds can be a useful tool, but they are not right for everyone. This guide explains how a deposit bond works in NSW, the benefits, the costs and the risks, so you can decide if one suits you.
Key takeaways
- A deposit bond is a guarantee, not a loan. It replaces the cash deposit you would normally pay on exchange.
- If you complete the purchase, the bond simply ends. You pay the full price at settlement.
- If you fail to complete, the issuer pays the seller the deposit and then recovers that money from you.
- The seller must agree to accept a deposit bond. In the standard NSW contract, the default answer is “no”.
- You pay a one-off fee to the issuer, usually based on the deposit amount and how long the bond needs to last.
On this page
What is a deposit bond?
When you buy property in NSW, you usually pay a deposit of up to 10% of the price when contracts are exchanged. This shows you are committed to the purchase. The deposit is normally held in trust by the agent or the seller’s lawyer until settlement.
A deposit bond is a written guarantee from a bond issuer (usually backed by an insurance company or financial institution). It promises the seller that, if you do not complete the purchase, the issuer will pay the seller the deposit. In return, you pay the issuer a fee. Moneysmart describes it as something that can be used in place of a cash deposit.
A bond is not a loan. You still need the full purchase price (including the deposit amount) ready for settlement, usually from your own savings and your home loan.
How does a deposit bond work?
- You apply to a deposit bond issuer before you exchange. The issuer checks your finances, often including your home loan pre-approval or other assets.
- Your lawyer confirms that the seller will accept a deposit bond and that the contract allows it.
- The bond is issued for the deposit amount, with an expiry date after the settlement date.
- You exchange contracts and give the bond to the seller’s agent or lawyer instead of cash.
- At settlement, you pay the full price. The bond is no longer needed.
What are the benefits of a deposit bond for buyers?
- Your cash is not tied up. This helps if your money is in a term deposit, shares or another property you are selling.
- You can buy before you sell. If your deposit will come from the sale of your current home, a bond can bridge the gap.
- Off-the-plan purchases. Settlement may be years away. A longer-term bond means you do not have a large sum sitting with the developer for that time.
- Speed. If you find the right home, a bond can let you exchange quickly without waiting for funds to be released.
- No interest. You pay a one-off fee rather than interest on borrowed money. For short terms, this can cost less than a short-term loan.
Do NSW sellers accept deposit bonds?
Many sellers do, but they do not have to. The front page of the standard NSW contract for the sale of land has a box asking whether the vendor agrees to accept a deposit-bond. The default answer is “no”. “Yes” has to be ticked, or the contract changed, for you to rely on one.
The standard contract also has a clause that sets out the rules for a deposit-bond, including what happens if it is due to expire before settlement. Some sellers also add special conditions, such as approval of the issuer.
Why might a seller say no?
- They need the cash. In NSW, a seller can sometimes use the buyer’s deposit towards the deposit on their own next purchase. They cannot do this with a bond.
- Agent’s commission. Agents often take their commission from the cash deposit at settlement. This is less convenient with a bond.
- Perceived risk. Some sellers see a cash deposit as a stronger sign that the buyer is committed.
Always confirm before you exchange. Ask your lawyer to check with the seller’s lawyer and update the contract. If you are buying at auction, sort this out before auction day, as you will be expected to sign and pay a deposit straight away. See our auction buyer guide.
What are the risks and costs of a deposit bond?
You are still liable if you do not settle
If you fail to complete, the issuer pays the seller and then recovers the full amount from you. You will usually have signed an indemnity (a promise to repay the issuer). The bond does not protect you. It protects the seller.
You must have the full price at settlement
Your lender needs to know you are using a deposit bond. Make sure your loan, plus your own funds, covers the whole price plus stamp duty and costs. If your property sale falls through or your finance changes, you could be left short.
The bond can expire
Every bond has an expiry date. If settlement is delayed past that date, which can happen with off-the-plan purchases, you may need to extend or replace the bond, or pay the deposit in cash. Check the expiry date carefully.
The fee is not refundable
The fee is paid upfront. It is generally not refunded, even if you settle early.
Not everyone qualifies
Issuers assess your income, assets and loan approval. Some will not issue bonds for certain buyers or property types.
Deposit bond vs cash deposit vs family guarantee
| Option | How it works | Main risk |
|---|---|---|
| Cash deposit | You pay up to 10% on exchange, held in trust until settlement. | You may lose it if you do not settle. |
| Deposit bond | An issuer guarantees the deposit for a fee. You pay the full price at settlement. | You must repay the issuer if you do not settle. The seller must agree to accept it. |
| Family guarantee | A family member uses equity in their property to secure part of your home loan. | Your guarantor’s property is at risk if you cannot repay. |
A family guarantee is different from a deposit bond. It helps with your loan, not your deposit at exchange. Read more in our guide to family guarantees.
Deposit bond FAQs
Can first home buyers use a deposit bond?
Sometimes. Issuers usually want to see loan pre-approval or enough assets to cover the deposit. Check with your broker or the issuer. Also see our guide to NSW first home buyer grants and schemes.
Can I use a deposit bond for part of the deposit?
Yes, if the seller agrees. Some buyers pay part in cash and the rest by bond.
What happens to the bond at settlement?
You pay the full price and the bond ends. It is returned or simply lapses under its terms.
Does a deposit bond affect my cooling-off rights?
No. If you have a cooling-off period, it works as usual. If you rescind during cooling-off, the seller is entitled to 0.25% of the price. Read more about the cooling-off period in NSW.
Need help buying property in NSW?
Talk to our property team
Property & Conveyancing
Our team can check that your contract allows a deposit bond, confirm the seller will accept it, and guide you through to settlement.
Visit our buying a property page to learn more about our conveyancing services or to get a quote. For the bond itself, speak with your mortgage broker or a bond issuer.
This article is general information only and is not legal advice. It reflects NSW law at the date of publication. Please contact us for advice about your circumstances.
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