Loss of deposit cover is designed for residential property developers who are selling units off-plan. It provides insurance for purchasers of off-plan units against loss of deposit due to developer insolvency. It is not only a great sales tool for developers but also provides comfort for the purchaser and their solicitor.
In the past, property developers have struggled to convince purchasers (or the purchasers’ solicitor) to release the deposit funds and allow them to use these funds for construction purposes. The purchaser, quite rightly, is concerned that if the developer finds themselves in financial difficulties, they may well lose their deposit.
This is no longer a problem as we can source a standalone financial bond that allows the developer to insure these deposits. Loss of Deposit insurance covers individual purchasers’ deposits so in the event that the property developer enters administration, their deposits will be reimbursed. This allows developers to release the deposit funds to contribute towards the build cost at a much lower rate than would be achieved by borrowing from the banks.
Benefits of Securing a Loss of Deposit Cover:
- Covers loss of deposit for potential purchaser
- Allows developer to release and reinvest any off plan deposits
- More cost effective than borrowing from a financial institution
- Funds guaranteed by the Insurer
- Insurer will pay in the event of default by the developer
- Security for the purchaser
- Cash flow for the developer
To highlight the savings available, here is a recent case study:
- A project of 100 units in central London with a GDV of £200m (approx. £2m each) needed a Loss of Deposit Cover
- It was anticipated that 50% (50 units) would sell off-plan generating deposits of £10m (at an average of 10%)
- The developer was able to use the funds for construction purposes and by providing LOD Cover to the purchaser, it gave assurance that if the developer ceased to trade, the purchasers would be refunded their deposits
- If the developer had gone to a bank to borrow the £10m it would have cost at least 6%. By using Loss of Deposit cover, it cost only 3%, generating a saving of £200,000
We can help!
London Belgravia Brokers specialise in specialist risk insurance products for property developers. In addition to deposit release insurance, we can also provide building warranties (Latent Defect Insurance) schemes. If you are interested in this scheme please call Giles Fallan on 0203 701 0420
