Family Guarantee Loans: How Mum & Dad Can Help

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Property prices have outpaced first-home-buyer income for over a decade. Family Guarantee loans are how parents help kids onto the ladder without giving away cash. Here’s how they actually work.

The Mechanics

Your parents (or another close family member) put up the equity in their own home as additional security on your mortgage. The lender no longer needs you to have 20% deposit because their security covers the gap.

Typical setup:

You contribute 5–10% deposit
Parents guarantee the remaining 10–15% via their property’s equity
Total LVR on your property still considered ≤ 80% from lender’s view (no LMI)

What Parents Actually Risk

The guarantee is for a specific dollar amount (typically the gap to 80% LVR), not the entire loan. So:

$600,000 property, you have $30k (5%) deposit
Parents guarantee $90,000 (the gap to 80%)
Parents are liable for up to $90k if you default — not the full $600k

But that $90k is secured against their home, which they could lose if it comes to a forced sale.

The Best Setup

1. Release the guarantee as soon as possible. As your loan balance decreases and property value grows, you can refinance to remove the guarantee. Target 20% equity ASAP (typically 5–10 years with regular repayments).

2. Keep guarantee amount minimal. Don’t guarantee the entire deposit gap if you can scrape together more yourself.

3. Family agreement in writing. Even with family, document: who pays the loan, what happens if you can’t, exit plan, what triggers consultation.

When Family Guarantee Is the Right Move

Parents own their home outright or with substantial equity
Your income is strong and growing
You’re confident in long-term employment
Property is in a stable market with reasonable growth prospects

When It’s Not

Parents need their home equity for retirement security
Your job is volatile (contractor, seasonal, commission)
You’re buying in a speculative market
Family dynamics are tense or financially strained

Tax & Estate Considerations

Gift duty: Generally no in Australia, but state-specific rules vary
Centrelink impact: Parents on age pension may have asset test issues
Estate planning: A guarantee on a property changes inheritance dynamics
Capital gains: Parents’ guarantee doesn’t affect their own CGT main residence exemption

What Banks Approve

Big 4 banks: All offer family guarantee products
Westpac/CBA/ANZ/NAB: Slight variations in maximum guarantee percentage
Non-bank lenders: Often more flexible but slightly higher rates
Required: Parents typically need independent legal advice before signing

Removing the Guarantee Later

When your LVR drops to 80% (through repayments + property growth):

Order a new property valuation
Apply to the bank for guarantee release
Bank refinances internally (sometimes minor fee)
Parents’ property security is discharged

Most family guarantees end within 7–10 years.

⚠️ Family Cost: Borrow well within your means. The relationship is worth more than the property.