Using a Parental Guarantee to Help Your Child Buy a Home: A Clear Guide
Getting into the property market can feel out of reach for many young Australians. Rising house prices, higher living costs and the challenge of saving a full deposit all play a part. That’s where a parental guarantee (sometimes called a family guarantee) can come in, helping your child get a foot on the ladder without needing to wait years to save. This guide explains how parental guarantees work, the benefits and the risks involved, and what to think about before making the commitment.
What Is a Parental Guarantee?
A parental guarantee is when a parent (or close family member) uses the equity in their own home as additional security for their child’s home loan.
Instead of gifting or lending money, the guarantor allows part of their home’s value to be used as security, usually to help the borrower avoid Lenders Mortgage Insurance (LMI) or to cover the deposit shortfall.
This means your child may be able to:
- Borrow up to the full property purchase price (sometimes plus costs)
- Get into the market sooner
- Save on LMI if the total loan-to-value ratio (LVR) drops below 80%
However, it’s important to understand that a guarantee is a serious financial commitment, the guarantor becomes partly responsible for the debt if the borrower can’t meet their repayments.
How the Guarantee Works
- Value both properties — your home and your child’s new home.
- Split the loan — part of the loan is secured against the child’s property, and part is secured against the parent’s property.
- Limit the guarantee — many lenders allow a limited guarantee, meaning the parent only covers a specific amount (for example, 20% of the purchase price) rather than the full loan.
This structure helps protect the parent’s property while still giving the borrower a leg-up into the market.
What Are the Benefits?
For buyers, the key benefits include:
- Getting into the market sooner — without waiting years to save a 20% deposit.
- Avoiding LMI — which can save thousands.
- Retaining savings — funds can be used for moving costs, minor renovations, or a financial buffer.
For parents, the satisfaction often comes from helping their kids build wealth and independence earlier, without needing to give up cash or sell assets.
What Are the Risks for Guarantors?
Before agreeing to a parental guarantee, it’s important to be aware of the potential downsides:
- If your child defaults on their loan, you’re legally responsible for the guaranteed portion.
- Your home could be used as security, meaning part of it is at risk if repayments aren’t made.
- If you plan to borrow in the future, a guarantee can affect your own borrowing power.
That’s why lenders typically require guarantors to seek independent legal and financial advice before signing anything, to make sure you fully understand your obligations.
When Can the Guarantee Be Released?
The good news is, a parental guarantee isn’t forever. Once your child has built up enough equity in their home (usually when the loan balance is below 80% of the property’s value), they can apply to remove the guarantee.
This can happen through a refinance, a property revaluation, or after consistent loan repayments over time.
Things to Consider Before Proceeding
Before entering a guarantee arrangement, both parties should:
- Have open conversations about expectations and responsibilities.
- Seek independent legal and financial advice.
- Understand all lender requirements — these can differ between banks and mortgage providers.
- Discuss an exit plan — including when and how the guarantee might be removed.
Navigating parental guarantees can be complex. A qualified mortgage broker, such as BrokerCo, can help explain the available options, compare lenders, and guide both parents and buyers through the process. A parental guarantee can be an effective way to help your child buy their first home sooner, but it’s a decision that needs careful thought. Both parents and buyers should understand the risks, obligations, and long-term implications before signing anything.