Exchange Bonds

What is an Exchange Bond®?

• An Exchange Bond® is an alternative to making a cash payment when committing to buy a new Home.

• An Exchange Bond® is an "insurance policy" which guarantees the full deposit amount to the Seller if the Buyer fails to complete the purchase having exchanged contracts.

• The Buyer of the property is still liable for the full deposit amount if he fails to complete, but the debt is owed to the Exchange Insurance Company ("ExCo") rather than the Developer.

• The Buyer pays a premium to ExCo for the Bond and the "beneficiary" of the policy (in the event of a default) is the Developer

Get an Exchange Bond® in 5 easy steps

1. Identify the Property you want to buy and reserve it.

2. Send in a completed application form, pay an £85 application fee, and get a quote.

3. We conduct a credit review and confirm premium within 48 hours, and send your customer agreement.

4. You and your solicitor both sign the customer agreement and return it to us with the premium.

5. We issue an Exchange Bond ® certificate ready for use at exchange of contracts

Principal Questions Answered.

1. What is an Exchange Bond®?

An Exchange Bond® is financial guarantee provided by The Exchange Insurance Company Ltd ("ExCo") to a Seller/Developer on behalf of a Buyer replacing the traditional cash deposit typically required at exchange of contracts for a residential property.

BUT remember at completion you have to pay 100% of the purchase price.

2. Can the deposit be part cash and part Exchange bond®?

Yes. The Exchange Bond® amount is fixed by agreement between the buyer and seller. If part of the deposit is to be in cash, then the bond application amount should be stated as the balance of the deposit amount required by the seller.

3. Are they risky to use?

No. The objective is to place both parties (Buyer and Seller) in the same position as they would normally be after exchange of contracts as if a cash deposit had been provided.

4. What happens if the Buyer does not complete the purchase contract?

As a Buyer you are legally liable to complete the purchase contract. If you fail to complete the purchase the Seller will be able to forfeit your deposit - which in this case means that the Seller will make a claim on ExCo under the Exchange Bond® for the deposit amount and ExCo will seek immediate reimbursement from you. Failure to reimburse ExCo will result in legal action by ExCo to recover funds directly from you the Buyer.

5. What if the Seller has unfairly kept your deposit?

If ExCo makes a payment to the Seller under the Exchange Bond® which the Seller intends to retain as your forfeited deposit, and you believe that the Seller was not entitled to do so, all your rights to recover the value of your deposit from the Seller remain intact under the purchase contract between you (the Buyer) and the Seller.

6. Will the Developer accept an Exchange Bond®?

A developer will make it clear from the outset that he is prepared to accept an Exchange Bond® as we will already have a framework agreement in place with that developer. If your Developer does not have a framework agreement with ExCo, we would be pleased to deal directly with your developer to make the necessary arrangements.

7. Will the Seller accept an Exchange Bond®?

A Seller would not typically receive your cash deposit - it is often held by his legal advisers. Accordingly it is the Seller's legal adviser who needs to be satisfied that the Exchange Bond® is equivalent to a cash deposit. We provide pro forma advice and explanatory notes for all legal advisers to ensure that there are no material grounds to oppose your wish to use an Exchange Bond® in lieu of a cash deposit.

8. What if the Seller will not accept an Exchange Bond®?

We would be pleased to discuss this matter directly with the Seller's legal advisers to seek resolution of the perceived problem. You may wish to make your offer conditional on the Seller accepting an Exchange Bond® in lieu of a cash deposit.

9. How do I apply for an Exchange Bond®?

If buying from a Developer, the application form should be available online through our virtual private network (VPN) with the Developer or through his selling agent. In an ordinary house purchase transaction, your legal adviser should be able to handle the application online from his offices. Legal advisers need to be registered with ExCo before they get access to our VPN for applications but this is a very simple process.

10. How does my legal adviser become registered with ExCo?

Call us on 0207 357 7059 for more information

11. Will my legal advisor be able to arrange an Exchange Bond®?

Yes, provided he is registered with Exco. Your legal adviser will have access to an ONLINE application form.

12. What if I haven't appointed a legal adviser yet?

We need to be sure that you are properly advised as to the nature of an Exchange Bond®. Accordingly we need to be able to communicate directly with your legal adviser in order to complete the transaction. You will be able to receive an indicative quote without having appointed a legal advisor, but should you wish to use an Exchange Bond® you will need to supply us with the details of your legal advisor in order to obtain the bond.

13. What are the key criteria for issuing an Exchange Bond®?

We need to be satisfied through a simplified credit check that if you fail to complete the house purchase and we are obliged to make a payment under the Exchange Bond®, you will be able to reimburse such amount to ExCo.

14. Is an Exchange Bond® transferable?

No. An Exchange Bond® is issued based on your personal credit standing against a specific house purchase and cannot be transferred or assigned to a third party.

15. What happens if the exchange of contracts is delayed?

A General Exchange Bond® is valid for 6 months and can be re-issued for another 6 months which should provide sufficient time to sort any problems that might arise from a delay in the exchange of contracts.

16. What happens if my house purchase collapses before exchange of contracts?

Provided the Exchange Bond® is returned and contracts have not been exchanged, we will refund the premium.

17. What happens if the house purchase collapses after exchange of contracts?

This depends on the reason for the collapse. If the Seller could claim your cash deposit under the house purchase contract then he is likely to make a claim under the Exchange Bond® - which unless there is some fundamental fraud, we will be obliged to pay. We will then seek immediate reimbursement from you of any amount we have to pay to the Seller.

18. What if the Seller makes a claim under an Exchange Bond® even though the reason for the collapse of the house purchase was because the Seller would not complete?

Except in the case of fraud we would remain obliged to pay the Seller's claim under the Bond unless you obtained a legal order preventing us from doing so. You would of course be able to seek reimbursement from the Seller of the deposit amount under your purchase contract with the Seller.

19. What happens if my house sale collapses?

If such collapse would allow you to claim forfeiture of the Buyer's deposit under the house purchase contract, then you would be entitled to make a claim under the Exchange Bond® which we would pay. The buyer would still be entitled to seek reimbursement from you of this amount in the event that he could prove that you were not entitled to such forfeiture. The objective is to put you in the same position as if you had received a cash deposit at exchange of contracts.

20. Can I apply for more than one Exchange Bond® at the same time?

Yes, but this would be a factor in the approval process. ExCo needs to be satisfied that you could meet all your obligations under any Exchange Bonds® issued on your behalf. Multiple Exchange Bond® applications could be conditional on additional credit requirements.

21. What happens if the completion date is changed?

A Term Exchange Bond® can be extended, but if it needs to be extended for more than 28 days there will be an additional premium to pay. A General Exchange Bond® has a maximum life of 6 months but if exchange has been delayed, we will issue another one with no additional premium just a small administrative charge.

22. Can the expiry date of an Exchange Bond® be amended?

Yes. A Term Exchange Bond® can be amended subject to payment of an additional premium. A General Exchange Bond® cannot be amended but a new one can be issued for a small administrative charge.

23. How much will an Exchange Bond® cost?

The premium for a Term Exchange Bond® varies depending on the time from issue to completion, the price of the property and the amount of the deposit. The premium for a General Exchange Bond® is based on the amount of the deposit. Premiums may also vary depending on your personal credit standing.

An indicative price will be provided before submission of the application form and payment of the application fee.

24. What should I do if I don't have a credit or debit card?

We prefer payments by credit card as this provides an additional confirmation in the customer verification process. In limited circumstances we may consider alternative payment methods.

25. If no claim is made on the Exchange Bond®, will I get my premium back?

Your premium represents the price we charge for issuing an Exchange Bond® and is not refunded when the bond expires. Developers may give a credit to you at completion for the amount of the premium which you have paid to ExCo in respect of a Term Exchange Bond® - we negotiate this directly with Developers before entering into framework agreements with Developers.

26. If my application is rejected, will I get my application fee back?

The application fee covers our costs of processing your application including third party expenses (credit agency fees). This fee will not be refunded in any circumstances even if your application is rejected.

27. How long will my application take to process?

Upon receipt of a fully completed application form, we should be able to give an approval within 48 hours. Additional information requirements could delay this process - we are reliant on prompt responses from you.

28. When will the Exchange Bond® be sent to me?

Upon approval we send your legal adviser a set of documents for execution. Upon receipt of the executed agreement and the premium (the amount of which is confirmed in the approval process) we send the Exchange Bond® directly to your legal adviser.

29. What happens if I get made redundant or become seriously ill?

If any circumstances arise which might undermine your ability to complete your purchase contract, you should immediately inform your legal adviser, ExCo and the Seller of the situation. Such circumstances do NOT release you from your obligations under your house purchase contract or your agreement with us, but we may be able to reach a settlement between ourselves and the Seller that could mitigate your liabilities.

30. Is it cheaper to use an Exchange Bond®?

ExCo is trying to simplify the process of buying and selling homes by removing the hurdle and complexity of the traditional cash deposit. Pricing of the General Exchange Bond® is designed to be comparable to borrowing costs.

Of course, for new properties where Term Exchange Bonds® are used, ExCo expect that the buyer will get a credit for any premium paid to us to set off against the purchase price payable at completion - so the financial benefits for a Buyer are substantial when compared to an equivalent cash deposit.

31. Can the amount of the Exchange Bond® be increased?

In limited circumstances the bond amount may be increased subject to the agreement of ExCo. Typically, additional costs might arise as a result of additional specification requirements from a Buyer which a Developer is seeking to secure prior to incurring such expenditure.

32. What if the Buyer withholds a portion of the purchase price?

The Exchange Bond® is not available to cover a shortfall from the Buyer. Any amounts paid towards the purchase price automatically reduce the amount available under the Exchange Bond®.

33. Does an Exchange Bond® work with stage payments?

We are aware that some developers will require payment being made during the construction phase. An Exchange Bond® will effectively secure the initial deposit typically paid by the Buyer at exchange of contracts, and the stage payments will then be made by a lender as normal. At completion the Buyer will simply pay the total cash balance.

34. Is the Exchange Insurance Company ("ExCo") regulated?

Yes. ExCo is authorised and regulated by the FSA in the UK and carries on business in Ireland on a "freedom of services" basis.