Guarantees used to be a simple way for parents to help their children into a first home. But with changes to responsible lending rules, things have become a lot more complex. If you're thinking about helping a family member buy a home—or you're a first-home buyer yourself—it’s important to understand what’s involved.
What is a guarantee?
A guarantee is when someone (usually a parent) agrees to be responsible for a borrower’s home loan if they are unable to make repayments. In the past, this was a relatively simple process—banks would allow a guarantee based on available equity, and that was enough security for the loan to go ahead.
What’s changed?
With the introduction of the Responsible Lending Code, banks are now required to complete a full assessment of anyone providing a guarantee. That means guarantors must be able to show that they could actually afford the repayments themselves if needed—even if they’re not expected to make them.
This creates a problem for many parents, especially those approaching retirement or with limited income. Even if they own their home outright, they may not meet the banks' serviceability criteria to act as a guarantor for a full loan.
What are the risks of being a guarantor?
The biggest thing to be aware of is liability. If a parent guarantees a $550,000 loan, for example, they’re legally responsible for that entire amount. That can be a major burden—particularly if you're planning to retire, buy an investment property, or want financial flexibility in the future. It may also affect your ability to borrow money for your own needs.
What are the alternatives?
Instead of providing a full guarantee, there are other ways parents or family members can support a home purchase:
Topping up the deposit: In many cases, it’s possible for parents to borrow a smaller amount—say $50K or $70K—against their own property. This helps the borrower reach a 20% deposit, which can then allow them to secure their own loan without needing a guarantee.
Gift or loan: Parents can choose to gift money or provide a private loan with an agreement in place. This might involve the funds being repaid when the house is sold, or once the borrower builds equity and can top up their mortgage.
Joint ownership: In some cases, buying the property together can make sense. This gives both parties an ownership share and helps build equity jointly.
Every situation is different
What works for one family might not work for another. That’s why it’s important to get personalised advice based on your financial situation and long-term goals. Guarantees are still possible in some cases, but there are often better and safer alternatives to consider.
If you're thinking about helping your children into a home—or you're a first-home buyer looking for options— book a call with us today!