Guarantor Loan Scenarios: Helping Family Enter the Property Market
Christian Stevens, Mortgage Broker
Published January 31, 2025, 2:10 p.m ET
With rising property prices and deposit hurdles, more Australians are turning to guarantor loans to help children, siblings, or other close family members get into the market sooner. These arrangements allow a family member to use equity in their own home to support a borrower’s application — often removing the need for lenders mortgage insurance (LMI) and opening the door to homeownership sooner.
With rising property prices and deposit hurdles, more Australians are turning to guarantor loans to help children, siblings, or other close family members get into the market sooner. These arrangements allow a family member to use equity in their own home to support a borrower’s application — often removing the need for lenders mortgage insurance (LMI) and opening the door to homeownership sooner.
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🔑 Key Facts
- Guarantor loans allow family members to help buyers secure a loan by offering equity as additional security.
- They can reduce or eliminate the need for a deposit and avoid costly Lenders Mortgage Insurance (LMI).
- Common among first home buyers and younger borrowers who need help entering the market.
- Flint helps structure guarantor loans safely — with clear boundaries, risk protection, and lender alignment.
What Is a Guarantor Loan?
A guarantor loan is a specialised home loan structure where a family member offers part of their property’s equity as additional security for a borrower’s mortgage. This can:
- Allow the buyer to enter the market with little or no deposit
- Eliminate the need for costly lenders mortgage insurance (LMI), even when borrowing over 80% of the property’s value
- Increase borrowing power by strengthening the overall application
Unlike gifting a deposit, a guarantor loan does not require the guarantor to provide cash — only equity. This makes it a popular option for parents or close relatives who want to help without compromising their own cash flow.
Who Can Be a Guarantor?
While eligibility criteria can vary slightly between lenders, most banks and non-bank lenders accept guarantees from:
- Parents and step-parents (most common)
- Legal guardians or custodians
- Grandparents
- Siblings (in select cases)
Typically, the guarantor must:
- Be an Australian citizen or permanent resident
- Own a property with sufficient equity
- Demonstrate good credit conduct
The guarantor usually offers a “limited guarantee” — often equal to 20% of the purchase price — to top up the buyer’s deposit to 20% and avoid LMI.
Scenarios Where Guarantor Loans Work Well
Guarantor loans aren’t just for young buyers — they suit a wide range of real-life situations, such as:
- First home buyers with minimal savings but a stable income: A guarantor can help overcome the deposit hurdle and enter the market earlier.
- Young professionals trying to purchase in high-cost metro areas: Family equity can help bridge the gap between savings and rising prices.
- Parents who want to assist without dipping into retirement funds or selling investments: Providing a guarantee uses their equity without touching their cash.
- Borrowers with excellent credit and serviceability, but limited deposit history: A guarantor can provide the last piece of the puzzle.
Risks and Responsibilities for Guarantors
While guarantor loans offer great benefits, they also come with obligations that should be carefully considered. Key risks include:
- Financial responsibility if the borrower defaults: The guarantor is legally liable for the guaranteed portion of the loan.
- Reduced borrowing power for the guarantor: Being listed as a guarantor may impact their ability to borrow for future investments.
- Emotional and relational strain: If financial hardship arises, family dynamics can become strained.
To minimise risk:
- Use a limited guarantee structure wherever possible
- Ensure both parties understand their rights and obligations
- Seek legal advice before committing
Tips for a Safe Guarantor Loan Setup
A well-structured guarantor loan can offer long-term benefits with minimal risk. Here’s how to do it right:
- Limit the guarantee: Wherever possible, structure the guarantee to cover only the shortfall to 20% — not the full loan amount.
- Have a clear exit plan: Plan to release the guarantor once the borrower has repaid enough or the property has appreciated.
- Ensure everyone is informed: Both the borrower and guarantor should receive independent legal advice before settlement.
- Use a specialist broker: Flint brokers are experts in structuring family-backed loans with precision and care.
📞 Helping Family? Make It Smart, Safe and Secure
Flint’s brokers are experts in structuring guarantor loans that work for everyone involved. We:
- Help buyers avoid LMI and enter the market sooner
- Protect guarantors with limited liability and structured release plans
- Provide end-to-end guidance to keep family relationships strong and informed
Talk to Flint today to explore guarantor lending the right way — with confidence, care and clarity for all parties.
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