Guarantor Structures & Family Support

Guarantor Structures and Family Support

What the structure involves

In a family guarantee arrangement, the guarantor (typically a parent) does not co-borrow — they offer equity in their own property as additional security for the borrower's loan. The guarantor's property is registered as additional collateral on the loan.

This is not the same as co-borrowing. The guarantor does not appear on the title of the purchased property. They are not a borrower on the loan. They are a security provider who has agreed that, if the borrower defaults and the lender's security is insufficient to recover the debt, the guarantor's property can also be pursued.

What a limited guarantee covers

The guarantee is typically structured as a "limited guarantee" — meaning it is capped at a specific amount rather than covering the entire loan balance.

The guarantee typically covers the gap between the borrower's actual deposit and the 20% required to reach the 80% LVR threshold. This allows the borrower to proceed with a 5% or smaller deposit, while the guarantee makes up the difference to the 80% level, avoiding LMI.

Example: A borrower purchases a property for $800,000 and has a $40,000 deposit (5%). The loan required is $760,000. To avoid LMI, the lender needs effective security at 80% LVR ($640,000). The guarantee covers the gap of $120,000 (the difference between $640,000 and $760,000), secured against the guarantor's property.

The risk to the guarantor

The guarantor's property can be pursued if the borrower defaults and the sale of the purchased property does not recover the full outstanding debt. This is not a hypothetical risk — it is a legal obligation the guarantor is taking on. Independent legal advice is a standard requirement before a guarantee is executed, and many lenders will not proceed without confirmation that the guarantor has obtained it.

Lender requirements for the guarantor

The lender must also be satisfied that the guarantor:

• Has sufficient equity in their property to support the guarantee amount (after their own debts)
• Can, in theory, service the guarantee if it were called — meaning the guarantor must pass a serviceability assessment, even if limited

Financial statements, tax returns, and evidence of the guarantor's own income and liabilities are typically required.

When the guarantee can be released

Once the borrower's loan balance reduces to 80% of the property value (through repayments, property value growth, or both), the guarantee is no longer needed. The guarantor can apply to have the guarantee released and the security over their property removed. This process requires a lender application and a new valuation.

Documentation requirements

A family guarantee requires: a formal guarantee document executed by the guarantor, a registered mortgage over the guarantor's property as additional security, independent legal advice for the guarantor, and often a financial assessment of the guarantor's own position.