Exchange Bond purchases

W

Woody100

Guest
Have any of you guys used an Exchange Bond scheme in order to purchase your off plan investment property ?

Just wondered what your thoughts were as it looks like an excellent way to purchase without having to come up with a 10% deposit straight away.

Are there any disadvantages ?

Regards.
 
I've just done a house move deal with one. For me it was the only way to get the 10% of the new house while waiting for the old one to sell, no problems at all with the transaction.
 
Would anyone care to explain to readers what an 'Exchange Bond' involves?

Here's an [broken link removed], albeit from a vested interest.
 
Basically you pay a fee and the bond company goes guarantor for that amount, at the end of the bond period you pay that amount to the builder. If you dont the bond company pay the builder and they come after you for the money.
For example;
House cost €500K, you pay the booking deposit of say €5k but the 10% (€50K) is now due on signing contracts and you dont have available cash (tied up in a house for sale etc) so you take out a bond for €50k. For this amount it costs roughly €1000 in fees to cover a period of 4 months, the longer the duration the higher the cost. The auctioneer will then return your €5k as he now has a bond for the 10%. On close of the sale you give hand over 100% of the house cost, the bond just lapses. if you pull out and default on the deal the bond companies solicitors have their wicked way with you!
 
So it is effectively bridging finance, but 'borrowed' from the builder/'bond company' as opposed to a bank?

Who arranges/sells these bonds?

What is the APR or effective rate of interest?
 
My understanding is that the Exchange Bond is a kind of insurance premium paid by the buyer/investor to the developer to ensure the reservation of a new off plan property, for example, which means that should the buyer not go ahead with the sale when the development is complete then the developer still gets his deposit money.

The buyer still pays his deposit on completion but he pays very little when reserving the property. I guess it just means that the investor can do other things with his lump sum deposit rather than hand it over to the developer initially.

The example I was given in sterling was that the Exchange Bond premium due on a £99,950 apartment due to be completed in twelve months time was around £800 !
 



Exchange bonds are a good way to get into the property if they are available on that particualr development however, it doesnt have any bearing on the security of the development, whether it will complete or not. Exchange Bonds are effectivly a short term loan, youlll pay a monthyl interest repayment during the build period of the property. However know that if the property doesnt complete you will be left with this loan, so choose carefully.
 
My experience with the Exchange Bond scheme has been with companies trying to use it to market developments in the Algarve that they can't sell, where deposits are high. I support what the previous poster said because this in no way help guarantee the scheme will be built.
 
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