Using a Guarantor to Buy Property: What You Need to Know

For many buyers, particularly first home buyers, saving a full deposit can feel like the biggest barrier to entering the property market. With rising property prices and the added cost of stamp duty and fees, it’s not uncommon for buyers to feel like they’re falling behind.

One option that can help bridge that gap is a guarantor home loan.

When structured correctly, a guarantor loan can allow you to purchase a property sooner, reduce upfront costs, and avoid lenders mortgage insurance (LMI). But like any financial strategy, it needs to be carefully considered.

What is a Guarantor Home Loan?

A guarantor home loan allows a family member — most commonly a parent — to use the equity in their own property as additional security for your loan.

Instead of needing a full deposit, the lender uses the guarantor’s property to reduce their risk. This can allow you to:

• Purchase with a smaller deposit (or in some cases, no deposit)

• Avoid paying LMI, which can save tens of thousands of dollars

• Enter the market sooner rather than continuing to save

Importantly, the guarantor does not provide cash — they provide security, backed by their property.

How Does It Work in Practice?

In a typical guarantor arrangement:

• You borrow up to 100% (or more, including costs) of the property value

• The lender splits the loan into two parts:

  • Your primary loan (secured against your new property)

  • A smaller guaranteed portion (secured against the guarantor’s property)

As your loan reduces over time — or as your property increases in value — the guaranteed portion can often be removed.

Who Can Be a Guarantor?

Most lenders require the guarantor to be an immediate family member, such as:

• Parents

• Grandparents

• In some cases, siblings

They must:

• Own property with sufficient equity

• Be financially stable

• Receive independent legal advice before proceeding

Each lender has slightly different requirements, so it’s important to structure this correctly from the start.

Benefits of Using a Guarantor

1. Enter the Market Sooner

Instead of spending years saving a deposit, a guarantor loan can help you move forward earlier — which can be important in rising markets.

2. Avoid Lenders Mortgage Insurance (LMI)

LMI can add significant cost to a loan. A guarantor structure can help you avoid this entirely.

3. Retain Your Savings

Rather than using all your savings as a deposit, you may be able to keep a financial buffer in place.

4. Build Equity Earlier

Owning property allows you to start building equity sooner, which can support future opportunities such as upgrading or investing.

What Are the Risks?

A guarantor loan is a shared financial commitment, so it’s important to understand the risks.

For the borrower:

• You are still responsible for the full loan

• If repayments are not met, it can impact both you and your guarantor

For the guarantor:

• Their property is used as security

• If the loan defaults, the lender may seek recovery against their property

Because of this, guarantor arrangements should always be approached with clear communication and careful planning.

When Can a Guarantor Be Removed?

One of the most common questions is how long the guarantor stays on the loan.

In many cases, the guarantee can be removed once:

• The loan balance drops below 80% of the property value, or

• The property increases in value, reducing the loan-to-value ratio

At this point, a refinance or reassessment can release the guarantor from the loan.

Is a Guarantor Loan Right for You?

A guarantor loan can be a powerful strategy, but it isn’t the right fit for everyone.

It may suit you if:

• You have stable income but limited deposit

• You have family support available

• You want to enter the market sooner rather than later

• You understand the responsibilities involved

It’s less suitable where financial positions are uncertain or where expectations between parties are unclear.

How We Help

At Shorebreak Finance, we take a structured approach to guarantor lending.

We help you:

• Understand whether a guarantor strategy is appropriate

• Structure the loan correctly from the outset

• Compare lenders and policy differences

• Plan for the eventual release of the guarantor

• Align the strategy with your long-term goals

Our role is to ensure both the borrower and guarantor are informed, comfortable, and positioned for the best possible outcome.

Next Steps

If you’re considering using a guarantor — or you’ve been asked by a family member to act as one — it’s worth having a conversation early.

Understanding how it works, what’s involved, and what the long-term plan looks like can make a significant difference.

Book a strategy session with Shorebreak Finance and we’ll walk you through your options, so you can move forward with confidence.