Bank guarantee or deposit: what’s the difference?
So, your bid has been accepted. That’s fantastic news of course. Often your purchase contract contains a date by which you must transfer a deposit or provide a bank guarantee. So, what’s the difference between a bank guarantee and a deposit? And how do you arrange that? We’ll explain.
What is a deposit?
The deposit is a down payment of 10% of the purchase price that you will receive back once the property purchase has been completed. It therefore represents a kind of guarantee for the seller. After all, if you sign a purchase contract, you are not yet the owner of the property. In the meantime, the seller would like to have some certainty. That is what the deposit is intended for.
There are 2 options available to you:
- Pay the deposit with your own money
- Have a bank guarantee set up
Paying the deposit with your own capital
You can pay the deposit with your own money. Prior to the agreed date, you will deposit the money with the notary. This is useful if you already wanted to bring in a considerable amount of your own money to purchase the home, or if you have money that you can do without for a while. That 10% of the purchase price is often of course a considerable amount that not everyone can stretch to in their account, which is why you can also opt for a bank guarantee.
Setting up a bank guarantee
With a bank guarantee, a third party guarantees the deposit if the property purchase fails to go through. You can arrange a bank guarantee through your mortgage advisor. At Viisi, we work together with BNP Paribas and Nationale Waarborg (National Guarantee) to facilitate bank guarantees. You sign a separate agreement for the bank guarantee that automatically ends when the purchase is completed.
Bank guarantee costs
The cost of the bank guarantee is usually 1% of the deposit. Some lenders charge a lower percentage and some charge no fees at all. If your lender charges higher costs or doesn’t offer a bank guarantee, you can take advantage of a fixed low rate for a bank guarantee through Viisi. Especially for Viisi customers, BNP Paribas charges a favourable fixed rate of €275 for guaranteed amounts up to €35,000. For any amounts exceeding that figure, you will be charged € 375. The notary will settle these costs at the time of the property transfer.
The follow-on procedure at the notary
The deposit is a down payment of 10% of the purchase price. If you buy a house priced at
€ 400,000, the amount will then be € 40,000. You deposit this amount with the notary before the agreed date stated in the purchase contract. In some cases, the money might have to be deposited for a longer period of time. So please note: due to the negative interest rate, the down payment you have deposited is decreasing in value by the day. As a home buyer, you may not immediately think about that, but you will see it stated on the invoice of the notary.
Is the purchase likely to go ahead? If so, you should get the deposit back from the notary after you receive the keys to the property. Do you have a bank guarantee? Then the provider of the bank guarantee will send a message over to the notary.
If the purchase fails to go ahead
Has the sale failed to go ahead, and are you not able to put forward a valid reason? In such cases, the deposit amount will be paid to the seller (via the notary). In the case of a bank guarantee, the lender will advance this amount. The bank guarantee is then converted into a loan, which you must repay to the lender.
This is how to prevent the purchase from falling through
Not having a property and also having a chunk taken out of your savings account or a debt for a bank guarantee is of course a scenario nobody wants. Therefore, it helps to pay attention to the following points:
- Enquire in advance about your options for the successful completion of the mortgage application, and contact us immediately if you have found or purchased a property.
- The purchase contract always states that you have a 3-day cooling-off period in which you can cancel the purchase without stating a reason. You do not have to pay a deposit to the seller in such instances.
- We recommend that certain resolutive conditions are included in the purchase contract, such as, for example, that the sale is subject to financing. This way you can prevent actually having to pay the deposit if the purchase doesn’t go ahead. Normally you have to transfer the deposit one week after the expiry of the resolutive conditions.
Advice on paying deposits
Our advisors will be more than happy to calculate for you whether it would be wise to pay the deposit using your own money. Will you be opting for a bank guarantee? If so, we will help you to arrange it. Feel free to set up a no-obligation phone appointment to discuss your situation.