30 Oct Bondsure – a win-win-win – Michael Wood
I can tell you about an innovative new financial product that provides renters with an option to pay rental bonds off in instalments. It is called Bondsure. This is a win-win-win for landlords, property managers and tenants.
Kevin: Paying a bond can be an untimely nuisance for tenants, tying up money at the start of a rental period when many people would prefer to spend money on other things. Recouping bonds can also be a real nightmare for some tenants, when accidents or disputes over cleaning put bond in jeopardy. Well, today I can tell you about a new product called BondSure, which is the brainchild of Australian lawyer and insurance entrepreneur Michael Wood, who we tracked down. He’s currently in London.
Michael: Hi, Kevin.
Kevin: Thank you for joining us. Michael, tell me about BondSure, and how does it work?
Michael: Well, we’ve only just launched, so it’s new and certainly it’s novel. What we’ve done is we’ve linked the option of funding a rental bond – rather than paying it upfront – with the option of insuring that bond while that bond is sitting with the Residential Tenancy Authority. That insurance cover is for accidental property damage and increased cost of cleaning, two of the things that often arise during or at the end of a tenancy that can erode that bond. The third component of the product is tenant’s contents insurance.
Kevin: We’ll talk about that separately in a moment, but I believe there are about 31% of renters Australia-wide, so this is obviously going to help a lot of them out – as I said in the intro there – particularly with coming up with some fairly hefty bonds. Is there a limit on the amount of the bond that is going to be offered?
Michael: Yes, we offer it up to $5000. We do that because we’re wanting to cater for the areas like Sidney and Melbourne where the rent is slightly higher but also understanding that the average bond around Australia – the average rental because the bond is normally four weeks – is around $1500 to $1600.
Kevin: Yes, average rent about $400 a week. Is this going to apply to all tenants? Will there be some form of credits they’ll need go through, Michael?
Michael: Oh gosh, yes, most importantly. We thought about this because it’s important for the landlord to know that his position is much as it was, if not – we hope – somewhat better, because his concern is to ensure that that bond is lodged with the RTA so as to protect him with respect of any breach of the lease or any property damage to his fixtures and fittings. So it’s vital that the right tenants are taking out the BondSure product, and also it has to be emphasized that it is a fully ASIC-regulated product, and in that regard, there are responsible lending obligations.
There’s probably three key credit checks. The first one is an identity check – this is all quite simple – and then also a Veda Tenancy Blacklist check. Veda is one of the main Australian credit agencies. Then, thirdly we have some financial questions about income and expense. Then the real challenge was incorporating in our online system a bank account verification check that is required to verify the information we’re given.
One of the positives that we had from the estate agents is “It’s great Michael that you’ve thought of the credit checks, because we do a certain amount of credit checking ourselves but we can only go so far. It’s great that you’re able to do these checks and also do it online so that it’s quite simple for the tenant.” Also, it doesn’t require much input from the estate agent at all.
Kevin: It seems to me there are great benefits here obviously for the tenants, also benefits for the owners and for real estate agents. Let’s talk a little bit about the periods to pay off because obviously you’re effectively offering them finance, helping them finance their bond amounts. Are those payoff periods then geared to the lease term? Is that how that works?
Michael: They are to an extent. What we’ve done is we understand that the most common lease term is 12 months but there are also shorter lease periods of six months. In our discussions with the estate agents, we thought it best not to just offer a 12-month period but also a 6-month period.
The idea being that it almost is akin to a savings plan, which is one of the rationalizations for it, which is that what we’re wanting to promote is repayment of principal and interest over a 12-month period and with hopefully the benefit of the insurance maximizing the likelihood of the tenant then getting that full sum back at the end of that 12-month period rather than having to use that bond from the RTA to, say, pay off the principal on the credit card. In a way we’d like to think that we’re promoting savings by having the tenant pay principal and interest over the period.
Kevin: What are the fees? What fees are applicable? Because it is like a loan.
Michael: The interest on the loan is at an annual percentage rate of 16%. Again, we’ve tried to provide a product at a cost that is well below what we consider to be the rather exorbitant costs of payday lenders.
Now, the way it works is that fees are paid upfront, so if we were looking, for example, at a $1500 bond, then what happens is… Let’s say Joe and Jane are out looking for a unit. All they do is go onto the website, they put in their details, go through the chase, get preapproval, and then once they’ve identified their property, all that’s required is that they go along to the estate agent.
Now the cost, if they take the bond loan and the property insurance, works out to be the total cost is the equivalent cost of $40 a week and then if the bond is returned by the RTA at the end of the period, that amounts to $29, meaning that the net cost of the product is $11 a week. That’s with the bond loan and the property insurance.
Kevin: Very affordable. We’ve got a minute or so left, but I did want to particularly ask you about the optional content insurance because I believe a lot of tenants around Australia don’t actually think about insuring their contents, Michael?
Michael: No, it’s very strange. We’ve have about two million tenants with private landlords as opposed to government tenancies, and it is extraordinary to think that in this day and age where we’re always insuring cars and houses structurally that renters, in particular, aren’t insuring their own contents.
What our policy does is that it has a standard, sort of market-common sum insured of $25,000 as a standard. It can be increased up to $50,000. It has a minimal excess of $200. And it responds when there is loss or damage to content during the 12-month period – up to $25,000, as I said – through fire, storm, theft, malicious act, flood. We cover flood as a standard up to the 25th parallel, which is to about Rockhampton in Queensland.
It’s a standard product, but yes, we’re wanting to promote that because it is odd that renters aren’t insuring their own content. I think $25,000 is generous – not all renters will have $25,000 of contents – but we were trying to offer a product in line with the other tenant’s policies offered by the bigger insurers.
Kevin: Michael, we’re out of time, but thank you very much for joining us. Congratulations on the product.
If you want to get a bit more information about it, if you’re a tenant, property owner, and you’d like to find a little bit more about it, the website is BondSure.com.au.
My guest has been Michael Wood. Michael, thank you for your time.
Michael: You’re most welcome. Thanks, Kevin.