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Benefits of Loss of Deposit Insurance

Benefits of Loss of Deposit Insurance

Loss of Deposit Insurance is designed for residential property developers who have an off-plan sales strategy. Its helps protect the purchaser in the event of  developer insolvency. It is not only a great sales tool for developers but also provides comfort for the purchaser and their solicitor.

Historically, property developers have struggled to convince purchasers (or their solicitors) to buy off-plan. Their primary concern is  the prospect of losing their deposit should the developer become insolvent. Most developers will require a 30% deposit but can currently only offer 10% loss of deposit cover.

This is no longer a problem as we can source a stand-alone financial bond that allows the developer to insure these deposits up to a maximum of 30%.

Loss of Deposit Insurance cover individual purchasers and ensures that their deposits will be reimbursed. Importantly for developers, this means they can release the deposit funds which can then be utilised towards the construction costs.

Benefits of Securing a Loss of Deposit Cover:

  • Covers Loss of Deposit for potential purchasers
  • Allows the 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
  • Provides Security for the purchaser
  • Supports healthy cash flow for the developer

Key features of Loss of Deposit Insurance:

  • Facility up to £300m GDV
  • Guarantee that deposit will be returned to the investor in the case of administration of the developer
  • Cover available up to 30% of the GDV

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 by providing LoD Cover to the purchasers. 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.

Specialist Insurance Brokers:

Loss of deposit Insurance are a complex product that need to be packaged professionally and presented to underwriters in a knowledgeable format.

We are specialist brokers for latent defects insurance and real estate surety products. We have access to providers that can assist in unique circumstances and can look to create products specifically for our client’s needs. We have built up unique relationships with underwriters that allow us across to unique markets ensuring our clients our clients the best levels of service

BuildSafe 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

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