How a family guarantee can work
A lender may take a limited guarantee secured against part of a family member’s property. The structure and acceptable relationships vary between lenders.
Risks for the guarantor
If the borrower does not meet the loan obligations, the guarantor may be required to pay up to the guaranteed amount and related costs. Their own borrowing capacity may also be affected.
Questions for the borrower
Compare the loan repayments, total debt, ownership arrangements and a realistic plan for releasing the guarantee. Do not treat additional security as increased repayment capacity.
Advice and documentation
Lenders commonly require guarantors to receive independent legal advice. Borrowers and guarantors should also discuss estate, relationship and financial implications with appropriate advisers.
Common questions
Questions first home buyers ask
Does a guarantor give the first home buyer money?
Not necessarily. In a security guarantee, a family member provides additional security rather than transferring cash. A gift and a guarantee are different arrangements.
Is the guarantor responsible for the whole loan?
Some structures limit the guarantee to an agreed amount, but terms vary. The guarantor must understand the documents and obtain independent legal advice.
When can a family guarantee be removed?
Release normally requires lender approval and may depend on the loan balance, property value and repayment conduct at that time.