Guarantor Home Loans in Australia: How Family Guarantees Really Work (And What You Need to Know)
I’m seeing a lot of guarantor loans lately.
And that’s not by accident.
In the current market, especially here in Melbourne, getting into property can feel like trying to jump onto a moving train. Deposits are large. Stamp duty (if you’re not eligible for concessions) hurts. And if you’re buying an investment property, the upfront cash required is even more significant.
This strategy — the family guarantee home loan — is one of the 10 pathways I outline for first home buyers. But what many people don’t realise is that it’s not just for owner occupiers. It can also be used for investment purchases, which can be powerful when structured correctly.
Let’s break it down properly.
What Is a Guarantor Home Loan in Australia?
A guarantor home loan (often called a family guarantee loan) is where a close family member — typically parents — offers part of the equity in their property as additional security for your home loan.
Instead of you needing a 20% deposit, the bank allows you to borrow up to 100% of the purchase price (and sometimes even more to cover costs, sometimes 105% - 107%), because they have extra security behind the scenes.
The key point:
The guarantor does not give you cash.
They offer a limited guarantee secured against their property.
Most lenders cap the guarantee to the amount needed to bring your loan back under 80% Loan to Value Ratio (LVR). That’s important. It’s not usually an open-ended commitment.
Who Is a Guarantor Home Loan Suitable For?
A family guarantee loan may be suitable if:
You have stable income but limited deposit
You want to avoid Lenders Mortgage Insurance
You want to enter the property market sooner
You’re purchasing an investment property but want to preserve cash
Your parents have strong equity and understand the risks
It should never be used just because it’s available.
It should be structured with a clear exit strategy.
How Does a Family Guarantee Actually Work?
Let’s say:
Purchase price: $700,000
You borrow the full $700,000
You have cash to cover stamp duty and purchasing costs
Now here’s where people get confused.
Lenders don’t just look at the “shortfall” figure.
They work off an 80% Loan to Value Ratio (LVR) rule.
What does that mean?
If the bank wants your loan to sit at 80% LVR or lower, we need to work backwards.
To support a $700,000 loan at 80% LVR, the property would need to be worth:
$700,000 ÷ 0.80 = $875,000
But you’re buying it for $700,000.
So effectively, the bank needs an additional $175,000 in equity support to bring the overall exposure back to an 80% position.
That’s where the guarantor comes in.
Your parents may provide a limited guarantee secured against their property for that capped amount (in this example, up to $175,000 — though often we structure it tighter depending on costs and buffers).
The bank then treats the combined security position as if the loan sits at 80% LVR.
And that’s it.
They’re not on the title.
They’re not on the loan.
They’re not making repayments.
But they are legally liable for the guaranteed portion if something goes wrong.
Why Guarantor Loans Are Increasing in Melbourne and Across Australia
Three reasons:
Property values have grown faster than savings capacity
Parents have significant equity
Younger buyers are financially responsible but deposit-constrained
For investment purchases, this becomes even more powerful.
When buying an investment property, you don’t get first home buyer concessions. There’s no stamp duty relief. There are no government guarantees backing you. The upfront cash required can be substantial.
A guarantor structure can preserve your cash buffer while still allowing you to enter the market.
When structured well, it’s not reckless. It’s strategic.
The Real Risks of Being a Guarantor
Let’s be honest here.
Is the risk impact high?
Yes.
If the borrower defaults and the property sells at a loss, the bank can pursue the guarantor for the guaranteed amount.
Is the likelihood of catastrophic loss high?
In my experience — no.
Most of the clients I see using this strategy:
Are financially stable
Have strong incomes
Have clear goals
Intend to remove the guarantee as soon as possible
But risk still exists. And it needs to be respected.
How to Protect Everyone Involved
This is where proper structuring matters.
Here’s what I strongly recommend:
1. Clear Exit Strategy
Before the loan even settles, we should know:
How and when the guarantor can be removed
What property value growth or debt reduction is required
Whether income growth will support refinancing
Most guarantees can be removed once the loan drops below 80% LVR.
2. Insurance Protection
At minimum, I like to see:
Income protection for the borrower
Life and TPD cover aligned to the guaranteed amount
Most people assume they have “some cover” inside super — and often they do. But this is the perfect opportunity to review it properly and make sure it’s actually adequate.
If something unexpected happens — job loss due to illness, permanent injury, or worse — we don’t want the guarantor exposed because protection wasn’t structured correctly.
This isn’t about over-insuring.
It’s about making sure the weakest link in the structure isn’t risk management.
3. Maintain Cash Buffers
I’m a big believer in liquidity.
If a borrower is using a guarantor, I prefer they keep some cash in offset rather than stretching every dollar into the purchase.
4. Guarantor Asset Positioning
Ideally, guarantors:
Have equity outside the family home
Or have refinancing options available
Or have strong cash reserves
Worst-case scenarios are rare — but planning for them is responsible.
5. Independent Legal Advice
Most lenders require guarantors to obtain legal advice before signing.
Is this partly to shift liability? Probably.
But it’s also important.
The guarantor needs to fully understand:
They are taking on real legal responsibility
The bank can pursue them
This is not just “helping out casually”
No surprises. No assumptions.
Case Study 1: Fast Exit Strategy (Real Client Scenario)
A couple purchased their first home using a limited parental guarantee.
They purchased nearly 12 months before they would be able to. Let’s break it down:
Purchase price: just over $640,000.
Cash required: $12,500 (to cover purchasing costs)
Parents guaranteed approximately $160,000.
12 months later:
Property value increased to $725,000+
They made additional repayments to bring the loan down to $625,000
That’s $100,000 in equity made in 12 months
We’re now only around $60,000 away from formally releasing the parents’ guarantee.
What I like most about this structure isn’t just the equity growth — it’s the risk position.
Even though the guarantee hasn’t yet been formally removed, the property is now materially ahead of the loan balance. In a forced sale scenario (which is highly unlikely), there is sufficient equity to clear the debt without exposing the guarantor.
Assuming market conditions remain stable, we expect the limited guarantee to be removed within the next 12 months.
This is exactly how a guarantor structure should work:
Clear entry advantage
Controlled exposure
Defined exit plan
Case Study 2: Entering the Market Without Buying a Home to Live In
Another example involved a young first home buyer with a strong income.
He didn’t want to purchase an owner-occupied property yet.
But he did want to get into the market.
Instead of waiting years to build a 20% deposit, we structured an investment purchase using a limited parental guarantee.
His mum was supportive, on the condition that:
He would cover all purchase costs
He would manage repayments independently
The structure would have a clear exit plan
The loan was structured at 100% of the purchase price, avoiding Lenders Mortgage Insurance entirely.
Estimated LMI saving: approximately $20,000.
Interest rate achieved: roughly 1% lower than he would have received borrowing solo at high LVR.
That pricing difference alone materially improved serviceability and long-term holding strength.
Rental income comfortably supported the majority of holding costs.
The objective is simple:
Build equity early.
Remove the guarantee once the property reaches sub-80% LVR.
Maintain independence throughout.
This wasn’t about stretching capacity.
It was about using family support to enter the market sooner — on controlled terms — rather than waiting on the sidelines.
Guarantor Home Loan FAQs (Answered Clearly)
Let’s go through these properly.
Does the guarantee last the full 30-year loan term?
No.
In most cases, it can be removed once the loan drops below 80% LVR.
This can happen through:
Property growth
Paying down debt
Refinancing
It is not automatically locked in for 30 years.
What if I want to sell my house?
If you’re a guarantor and want to sell:
The guarantee must be released first
Or replaced with another acceptable security
Or the borrower refinances
You cannot sell while the guarantee remains secured against your property without resolving it.
This needs to be factored in upfront.
Do I have to make repayments if the borrower stops?
You are not required to make ongoing repayments while the loan is performing.
However, if the borrower defaults and the property is sold at a loss, the bank can pursue you for the guaranteed amount.
Important distinction.
Do they have a claim over my entire home?
Typically no.
Most guarantees are limited guarantees, meaning only a capped amount is secured.
But legally, if enforced, the lender can seek repayment up to the guaranteed amount, which may involve action against the property.
How does it actually work in practice?
In practice:
Borrower makes repayments.
Guarantor does nothing.
Over time, equity builds.
Guarantee is removed.
Everyone moves on.
When structured responsibly, it’s often a temporary bridge.
Final Thoughts on Family Guarantee Loans
Guarantor loans aren’t desperate measures.
When structured properly, they’re a disciplined way to accelerate market entry while managing risk.
But structure is everything.
If you’re considering a guarantor home loan — whether as the borrower or the parent being asked to help — it’s worth modelling properly before making any decisions.
Because the difference between fear and strategy usually comes down to clarity.
💬 Use the contact form, or book a meeting to explore whether a family guarantee loan could help you enter the property market sooner — with the right structure and exit plan.
