Buying a first home with a family guarantee: how it works, what it risks

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Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

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There are two ways for a first home buyer to get past the 20 per cent deposit that lenders treat as the safe line. One is to have the Australian Government guarantee the gap, through its 5% Deposit Scheme. The other is older, and private: to have a member of the family guarantee it, using the equity in their own home.

A family guarantee moves no money. The parent does not hand over a deposit, and the child does not owe the parent anything. What changes hands is risk. The parent's house becomes security for part of the child's loan, and stays that way until the lender agrees to let it go.

For some Queensland buyers it is the only route that works: those buying above the government scheme's price caps, those who owned a home within the past ten years, and those who need to borrow the purchase costs as well as the price. This guide explains how a family guarantee is put together, what it saves, what the guarantor is promising, the protections the banking industry's code gives a guarantor, how the arrangement ends, and how it sits beside the grant, the duty concessions and the government guarantee.

Commonwealth Bank, lenders mortgage insurance page; Finder 2026 Home Loan Report, published 20 August 2026; Banking Code of Practice 2025.

What a family guarantee is

A guarantee is a promise to a lender. Moneysmart, the consumer finance site run by the Australian Securities and Investments Commission, describes a guarantor as the borrower's financial backup: if the borrower cannot make the repayments, the guarantor may be required to pay.

A family guarantee for a home loan is a particular kind. It is secured, meaning the guarantor offers property as security and not just a signature, and it is usually limited, meaning it covers a stated part of the loan and not all of it.

Lenders sell it under different names. St.George calls its version Family Pledge, and its description sets out the structure in plain terms: a family member uses the equity in their home to guarantee part of the borrower's loan, without providing any cash, and nominates a specific guarantee amount instead of guaranteeing the whole loan. BankVic, a customer-owned bank, describes the same idea: equity in the family member's home is used as security against the buyer's loan, and no funds are transferred.

Who can give one is set by each lender. St.George lists parents, siblings, sons and daughters. Other lenders draw the circle differently, and the definition is one of the first things to check.

Two features separate a family guarantee from simply helping with money. The guarantor keeps their savings, and may have none to give: the asset being used is the house. And the help is temporary by design. A gift is gone; a guarantee is meant to be released once the buyer's own equity has grown.

How it removes the need for mortgage insurance

The saving comes from how lenders price risk. The Commonwealth Bank's explanation of lenders mortgage insurance says the premium is typically required when a loan is more than 80 per cent of the property's value, which is the same as a deposit under 20 per cent. It describes the premium as one-off, non-refundable and non-transferable, generally between 1 and 5 per cent of the loan amount, and added to the loan. The insurance protects the bank, not the borrower.

A guarantee attacks the ratio, not the premium. The lender takes security over two properties, the one being bought and part of the guarantor's, and lends against both. St.George puts it this way: the guarantee reduces the borrower's loan-to-value ratio, which can remove the need for mortgage insurance entirely. Its own example is a guarantee of $125,000 that brings a loan at 90 per cent of the property's value down to 80 per cent, so the premium is waived.

The Commonwealth Bank lists guarantor support, in which a family member mortgages their property, as one of the ways to avoid the premium, beside the Australian Government's 5% Deposit Scheme.

A guarantee can also stretch further than the government scheme does. St.George says that with a Family Pledge a borrower may be able to borrow up to 100 per cent of the purchase price plus costs such as stamp duty and legal fees. Under the 5% Deposit Scheme the buyer must still find the 5 per cent, and the costs of buying, in cash.

A worked example at $700,000

The figures here are illustrative. Assume a first buyer purchasing an existing home in Queensland for $700,000, with $35,000 saved, which is 5 per cent of the price. Assume the lender will lend without mortgage insurance at up to 80 per cent of the security it holds, and that the buyer's parents own their home outright.

The loan is the same size in both columns. That is the point most easily missed. The guarantee does not reduce what the buyer owes by a dollar. The buyer borrows $665,000 either way, pays interest on all of it, and has to satisfy the lender that the repayments are affordable on their own income.

What the guarantee changes is the security. The lender holds the $700,000 home and a further $105,000 secured against the parents' house, so that the loan is covered as if a full 20 per cent deposit had been paid. The premium that would otherwise be added to the loan is not charged.

On the transfer duty side this particular purchase is simple. A first buyer who meets the Queensland Revenue Office's conditions pays no duty on an existing home priced at $700,000 or less.

The parents' home has to be large enough to carry the promise. St.George's rule is that no single guarantee may represent more than 50 per cent of the guarantor's security. Under a rule like that, a guarantee of $105,000 needs a guarantor's property worth at least $210,000 and free of other debt against that portion.

What the guarantor is really promising

The family conversation about a guarantee tends to be about trust. The legal document is about money, and Moneysmart's list of the risks is the place to start.

The whole guaranteed amount can be called on. If the borrower does not pay, the guarantor may have to pay the amount guaranteed, together with interest and fees. A limited guarantee caps the exposure; it does not make it theoretical.

The security can be sold. Moneysmart warns that a lender may repossess assets offered as security. St.George's wording for its own product is direct: if the borrower does not pay the loan, and the guarantor does not have the cash to pay when asked, "your house may be sold to cover it."

The guarantor's own borrowing is affected. Moneysmart says a guarantor must tell future lenders about any guarantee they have given, and that this can lead to a loan being refused even when the borrower has never missed a payment. Parents who plan to refinance, downsize with a bridging loan or borrow for another purpose are less free to do it while the guarantee stands.

A default can reach the guarantor's credit report. If neither the borrower nor the guarantor repays the guaranteed loan, the lender may record a default against the guarantor.

The relationship carries the strain. Moneysmart lists damaged relationships among the risks, and it is the one families are least likely to price in.

Before signing, Moneysmart suggests the guarantor confirm four things in the loan contract: the exact amount of the loan and whether the guarantee covers all of it or part, which assets are security, how long the loan runs, and how the interest is worked out. It also says a guarantor can negotiate to guarantee only part of a loan.

The protections in the Banking Code

Banks that subscribe to the Banking Code of Practice have agreed to a set of rules about how they deal with guarantors. The current version, the 2025 code, was approved by the Australian Securities and Investments Commission and took effect on 28 February 2025. It is published by the Australian Banking Association.

Four of its provisions matter to a parent.

The bank must give the guarantor documents, not just a form to sign. The code lists the proposed loan contract, any related security contracts, the borrower's credit report, and other information the guarantor asks for about the loan being guaranteed.

The bank must give a prominent notice. It has to tell the guarantor that they should seek independent legal and financial advice, that they can refuse to sign, that there are financial risks, and that they may be able to limit their liability.

There is a pause. The code says a bank will not accept a guarantee until the third day after the guarantor has been given that information. The pause can be shortened if the guarantor has obtained independent legal advice.

The liability must have an edge. Under the code a guarantor's liability is limited to a specific amount, or to the value of specified property. And a guarantor can withdraw before the credit is provided, or afterwards if the final loan turns out to be materially different from the one they were shown.

Not every home lender is a bank bound by the code, so it is worth asking a lender which code it subscribes to and what its own guarantee documents provide.

Getting the guarantee released

A family guarantee is supposed to end long before the loan does. How it ends is set by the lender's policy, and the policies have a common shape.

St.George says a guarantee can be released provided the borrower is not in default and the bank would not require mortgage insurance on the outstanding loan balance at that time. BankVic's description is that once 20 per cent of the property's value has been paid off, it releases the family guarantee from the guarantor's title.

In the worked example the test would be met when the $665,000 loan is no more than 80 per cent of the home's value. If the home were still worth $700,000, the loan would have to fall to $560,000, a reduction of $105,000. If instead the home's value rose to $831,250, the original loan would already be 80 per cent of it. In practice it is some of each: repayments and any growth in value work together, and a fall in value pushes the date out.

Release is not automatic. The borrower has to ask, the lender will normally want a valuation, and the lender decides. If values have fallen, or the borrower has missed payments, the answer may be no. A guarantor who expects to be free in three years should understand that the timetable depends on a market neither party controls.

Guarantee, gift or co-ownership

Parents who want to help have three broad choices, and in Queensland the choice affects the buyer's entitlement to State assistance as well as the family's finances.

The last column is the one with consequences for a Queensland first buyer. The Queensland Revenue Office's application guide for the First Home Owner Grant says all owners of the home must be applicants, or be identified as a non-applicant spouse. A parent who goes on the title to strengthen the loan becomes an owner, and a parent who has owned and lived in a home, as most have, does not meet the grant's test. The first home duty concessions are likewise claimed by the people acquiring the property.

A guarantor is not acquiring anything. The buyer remains the only owner, and the Revenue Office's conditions about previous ownership, age and living in the home are applied to the buyer. That is the structural advantage of a guarantee over co-ownership for a family that wants to help without disturbing the buyer's eligibility. The buyer should still confirm the position with the conveyancer or solicitor handling the purchase, because the Revenue Office assesses each transaction on its own facts.

A gift is simpler than either, where the family has the money. Lenders typically ask for confirmation that the sum is a gift and not a loan to be repaid, and some schemes look at where a deposit came from. Queensland Treasury's Boost to Buy, for example, asks for a minimum 2 per cent deposit that demonstrates the buyer's actual savings.

Where it sits beside the government schemes

The Australian Government's 5% Deposit Scheme does for eligible first buyers what a family guarantee does, with the Commonwealth in the parent's place. Housing Australia describes its guarantee as covering up to 15 per cent of the property's value, the same gap as in the worked example, and no family asset is put at risk. For a buyer who qualifies, it is the first option to look at.

A family guarantee comes into its own where the government scheme stops.

Above the price caps. The scheme's caps in Queensland are $1,000,000 for Brisbane, the Gold Coast and the Sunshine Coast, and $700,000 for the rest of the state, according to the First Home Buyers website. Domain put Brisbane's median house price at a record $1.21 million in the June quarter of 2026, so the typical Brisbane house is outside the scheme.

Outside the ownership test. The scheme treats a person as a first home buyer if they have not owned a home or land in Australia in the past ten years. Someone who sold within that period is excluded, and so is anyone who is not an Australian citizen or permanent resident.

When the costs need funding too. The scheme requires a 5 per cent deposit in cash. A guarantee, depending on the lender, may allow the price and the purchase costs to be borrowed.

Other Queensland help is unaffected by the choice between the two. The $30,000 First Home Owner Grant on a new home valued under $750,000 and the first home duty concessions depend on the home and on the buyer, not on whose guarantee supports the loan.

How common it is

Family help has become a normal part of a first purchase, and guarantees are one strand of it.

Finder's 2026 Home Loan Report, published on 20 August 2026 from a survey of 1,010 adults in July, found that 67 per cent of Generation Z home buyers had received help from family, against 11 per cent of baby boomers. Among Generation Z buyers who were helped, 19 per cent had a family member go guarantor, the same share as had the whole deposit contributed, while 24 per cent had a family member pay for the home outright. The report's author cautions that family gifts and guarantees carry legal and tax consequences.

Lending data points the same way. Aussie and Lendi Group reported in February 2024 that guarantor loans had risen from 1.8 per cent to 5 per cent of the first home buyer loans written through their brokers. Buyers with a guarantor had an average deposit of $38,000, against $103,000 for those without, and bought homes averaging $763,000 against $621,000.

Those two pairs of numbers describe the trade exactly. A guarantee lets a buyer with little more than a third of the savings buy a dearer home. Whether that is an advantage depends on whether the larger loan is comfortable to carry, which a guarantee does nothing to change.

Questions for both sides of the table

A family guarantee is one of the few financial decisions that two households make together. Each has its own list.

For the buyer:

1. Can I meet the repayments on the full loan from my own income, with a margin, without anyone's help?
2. Do I qualify for the 5% Deposit Scheme, which would do the same job without my family's home being involved?
3. How much has to be repaid, or how far do values have to rise, before the guarantee can be released?
4. Does anything in the arrangement put another person on the title, and what would that do to the grant or a duty concession?

For the guarantor:

1. What is the exact amount I am guaranteeing, and is it limited in writing?
2. Which property is the security, and what else is already secured against it?
3. What are my own plans for the next five to ten years, and could I still carry them out with this guarantee in place?
4. If I had to pay the guaranteed amount tomorrow, where would the money come from?
5. Have I taken legal advice from someone who is not also acting for the borrower?

None of these questions has a general answer. A guarantee can be a low-cost way for a family with equity and little spare cash to give a real start, and it can also tie two households' finances together through a period when either may need flexibility. The lender sets the terms, the Banking Code sets minimum protections for the guarantor, and an independent solicitor is the person to explain what a particular guarantee document says before anyone signs it.

Kooky, from Shaka

Kooky edits Queensland Estate and builds Shaka, the payment router he made for Queensland property professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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