How to Use a Deposit Guarantee to Buy Property in Australia Without a Cash Deposit

Buying a home is a major financial milestone, but saving for a cash deposit can be one of the biggest hurdles, especially in Australia’s competitive property market. A deposit guarantee—often called a guarantor home loan—offers a pathway to homeownership without needing to save a full cash deposit. This guide explains how deposit guarantees work, who can benefit, and what both borrowers and guarantors need to know before signing on the dotted line.

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What Is a Deposit Guarantee?

A deposit guarantee is an arrangement where a third party—usually a close family member—uses their own property or savings as security to cover part or all of the deposit required for a home loan. This allows the borrower to purchase a property without having saved the typical 20% deposit, potentially avoiding Lenders Mortgage Insurance (LMI) and securing more favorable interest rates.

In Australia, deposit guarantees are commonly structured as:

Security guarantee: The guarantor offers equity in their own property as additional security for the loan.
Cash-backed guarantee: The guarantor places a term deposit with the lender as security, which is released after a set period.
Family pledge loans: Some lenders offer specific products where the guarantor provides a limited guarantee, often capped at a certain percentage of the loan.

Deposit guarantees are not a loophole—they are a legitimate lending arrangement regulated by Australian credit laws, and lenders assess both the borrower’s and guarantor’s financial positions rigorously.

How Deposit Guarantees Work in the Australian Property Market

When you apply for a home loan with a deposit guarantee, the lender considers the combined security position of the borrower and the guarantor. Here’s a typical scenario:

The borrower wants to buy a property worth $600,000.
They have no cash deposit but a parent offers a guarantee using $120,000 of equity in their own home.
The lender approves a loan for the full purchase price plus costs, secured against both the new property and the guarantor’s property.
The guarantee is limited to the $120,000, so the guarantor isn’t liable for the entire loan.

Once the borrower builds enough equity in their property (usually 20% or more), they can apply to release the guarantee. This process can take 3–5 years, depending on property value growth and loan repayments.

Key Benefits of Using a Deposit Guarantee

No cash deposit needed: Enter the property market sooner.
Avoid LMI: Lenders Mortgage Insurance can cost thousands; a guarantee often eliminates this expense.
Potentially better interest rates: With a lower loan-to-value ratio (LVR) thanks to the guarantee, borrowers may access cheaper rates.
Faster entry to the market: In rising markets, waiting to save a deposit can mean missing out on capital growth.

Potential Drawbacks and Risks

Family strain: Financial arrangements between relatives can cause tension if not handled carefully.
Guarantor’s property at risk: If the borrower defaults, the lender can sell the guarantor’s asset to recover the guaranteed amount.
Limited borrowing flexibility: The guarantee may restrict the borrower’s ability to refinance or sell until released.
Guarantor’s future borrowing capacity: The guarantee reduces the guarantor’s ability to borrow for their own needs.

Eligibility and Lender Requirements for Deposit Guarantees

Not everyone can access a deposit guarantee. Lenders have strict criteria to protect all parties. Here are the typical requirements for both borrowers and guarantors as of 2025.

Borrower Eligibility

Stable income: Full-time employment or consistent self-employment income over at least 6–12 months.
Good credit history: A clean credit report with no defaults or late payments.
Genuine savings: Some lenders require evidence of genuine savings (e.g., 5% of the purchase price) even with a guarantee.
Serviceability: The borrower must demonstrate they can afford repayments at an interest rate buffer (usually 3% above the actual rate).
Property type: The property must be acceptable to the lender (e.g., residential, not rural or unique).

Guarantor Requirements

Sufficient equity: Usually at least 20% equity in their property after the guarantee amount is accounted for.
Age: Most lenders require guarantors to be under 65 (or demonstrate exit strategy if older).
Independent legal advice: Mandatory—guarantors must see a solicitor to understand the risks.
Financial stability: Guarantors must prove they can service their own debts without relying on the borrower.
Relationship to borrower: Typically parents, sometimes siblings or grandparents; commercial guarantors are rare.

Lender-Specific Policies (2025 Examples)

Lender	Guarantee Type	Max LVR	Genuine Savings Required	Guarantee Release
Commonwealth Bank	Family Support Guarantee	105% (incl. costs)	No	When LVR ≤ 80%
Westpac	Family Guarantee	110%	5% genuine savings	After 2 years, LVR ≤ 80%
ANZ	Family Pledge	100%	No	On application, LVR ≤ 80%
NAB	Family Guarantee	105%	5% genuine savings	When LVR ≤ 80%
St.George	Family Pledge	105%	No	After 12 months, LVR ≤ 80%

Note: Policies change frequently; always check current terms with a mortgage broker or lender.

Step-by-Step Application Process for a Deposit Guarantee Home Loan

Securing a home loan with a deposit guarantee involves several stages. Here’s a detailed walkthrough based on current Australian lending practices.

Mortgage broker in an office meeting with a client, utilizing a laptop.

Step 1: Assess Your Financial Situation

Before approaching a lender, calculate your borrowing power using online calculators. Consider your income, expenses, existing debts, and credit score. Guarantors should also review their equity position and any potential impact on their retirement plans.

Step 2: Find a Suitable Property and Get Pre-Approval

Engage a mortgage broker who specializes in guarantor loans. They can compare lenders and secure conditional pre-approval. You’ll need to provide:

Identification documents
Proof of income (payslips, tax returns)
Living expenses breakdown
Guarantor’s property details and mortgage statement

Step 3: Property Valuation and Guarantor Assessment

The lender will value both the property you’re buying and the guarantor’s property. They’ll also assess the guarantor’s financial position. This step can take 1–2 weeks.

Step 4: Formal Loan Application and Legal Advice

Once the valuation is satisfactory, submit the formal application. The guarantor must obtain independent legal advice and sign a guarantee document. The solicitor will explain:

The extent of the liability
The circumstances under which the lender can call on the guarantee
The process for releasing the guarantee

Step 5: Loan Approval and Settlement

After approval, loan documents are issued. Both borrower and guarantor sign, and settlement occurs. The guarantee is registered on the guarantor’s property title.

Step 6: Ongoing Management and Guarantee Release

Make regular repayments and monitor your loan-to-value ratio. When your property equity reaches 20% or more, contact your lender to initiate the guarantee release. A new valuation may be required.

Risks and Responsibilities for Guarantors

Being a guarantor is a significant commitment. While it can help a family member, it’s not without danger. Here’s what guarantors must consider:

Loss of asset: If the borrower defaults and the property is sold at a loss, the lender can pursue the guarantor’s property for the shortfall.
Impact on credit: The guarantee appears on the guarantor’s credit report, potentially affecting their own borrowing capacity.
No control over borrower’s actions: The guarantor doesn’t own the new property and can’t force a sale if they become uncomfortable.
Relationship breakdown: Financial stress can damage family relationships; open communication is essential.

How to Mitigate Risks

Limit the guarantee: Always opt for a limited guarantee rather than unlimited.
Get independent legal and financial advice: Understand the worst-case scenario.
Agree on an exit plan: Set a timeline for releasing the guarantee, e.g., when the property reaches a certain value.
Consider insurance: Some lenders offer guarantee protection insurance, though it’s rare.

Alternatives to Deposit Guarantees

Deposit guarantees aren’t the only way to buy with a low deposit. Here are some alternatives available in Australia in 2025:

First Home Guarantee (FHBG): A government scheme allowing eligible first home buyers to purchase with a 5% deposit without LMI. The government acts as guarantor.
Family Home Guarantee: For single parents with dependents, allowing a 2% deposit.
Regional First Home Buyer Guarantee: For buyers in regional areas, with a 5% deposit.
Lenders Mortgage Insurance (LMI): If you have a deposit of 5–19%, you can pay LMI to secure a loan without a guarantor.
Shared equity schemes: Some states offer shared ownership where the government co-owns a portion of the property.

Each option has pros and cons regarding eligibility, costs, and ongoing obligations. A mortgage broker can help compare them against a deposit guarantee.

FAQ

What is the difference between a deposit guarantee and a guarantor home loan?

They are essentially the same thing. A deposit guarantee is the mechanism; a guarantor home loan is the product. The guarantor provides security to cover the deposit shortfall.

Can I use a deposit guarantee for an investment property?

Most lenders restrict deposit guarantees to owner-occupied properties. Some may allow it for investment loans, but stricter criteria apply, and the guarantor’s risk is higher.

How long does a deposit guarantee last?

Typically until the borrower has at least 20% equity in their property. This can take 3–5 years, but some lenders allow release after 12 months if the LVR drops sufficiently.

What happens if the guarantor wants to sell their property before the guarantee is released?

The guarantee must be released or replaced. If the borrower can’t refinance to remove the guarantee, the sale may be blocked. This is a critical point to discuss with a solicitor.

Are there any tax implications for the guarantor?

Generally, no, unless the guarantee is called upon and results in a capital loss. However, if the guarantor charges a fee for providing the guarantee, that income may be taxable. Always consult a tax professional.

Can a deposit guarantee be used with a First Home Owner Grant?

Yes, in most cases. The guarantee covers the deposit; the grant can be used for other purchase costs or to reduce the loan amount.

References

Australian Securities and Investments Commission (ASIC) – “Guarantor loans” (2025). https://moneysmart.gov.au/glossary/guarantor
Commonwealth Bank of Australia – “Family Support Guarantee” (2025). https://www.commbank.com.au/home-loans/family-support-guarantee.html
Westpac Banking Corporation – “Family Guarantee” (2025). https://www.westpac.com.au/personal-banking/home-loans/family-guarantee/
National Housing Finance and Investment Corporation (NHFIC) – “First Home Guarantee” (2024). https://www.nhfic.gov.au/what-we-do/first-home-guarantee/
Australian Banking Association – “Home loan guarantees: what you need to know” (2023). https://www.ausbanking.org.au/home-loan-guarantees/