The short answer
With a family guarantee, a family member offers equity in their property as extra security for part of your loan. Some lenders then treat your loan as if you had a larger deposit, which can mean borrowing more of the price without paying lenders mortgage insurance. Your guarantor is responsible for the amount of the guarantee if you can’t repay.
How a family guarantee works
- Your guarantor agrees to secure part of your loan with equity in their property.
- The lender takes a mortgage over that property, usually limited to the amount of the guarantee.
- You make the repayments as normal. The guarantor doesn’t pay unless you default.
- When your loan is low enough relative to your property’s value, you apply to release the guarantee.
Who may consider it
- Buyers who can service the loan but have less than a 20% deposit.
- Families who want to help without giving cash.
Lenders set their own criteria on who can be a guarantor and how large the guarantee can be, so availability differs.
Risks to talk through as a family
- The guarantor’s property is at risk for the amount of the guarantee if you can’t repay.
- Being a guarantor can affect their own borrowing while the guarantee is in place.
- Relationships can be strained if things go wrong, so plan for the what-ifs.
- Lenders often require the guarantor to get their own legal advice before signing.
Other ways to buy with a smaller deposit
Depending on your situation, the 5% Deposit Scheme, Help to Buy or a professional LMI waiver may also be worth comparing. See what LMI is and ways some buyers avoid it and Help to Buy explained.
General information only. Guarantee rules differ by lender, and your guarantor should understand the risks before agreeing.
Mortgage broker at My Finance Consultants. Daniel compares home loan options from a panel of 40+ lenders for refinancers, investors and home buyers, by phone or video, evenings included. About Daniel
General information only. It doesn’t consider your objectives, financial situation or needs, and it isn’t tax, legal or financial product advice. Lending criteria, fees and charges apply.