Trying to save for a home deposit is a serious challenge—especially in today’s economic climate, where inflation and rising property prices make homeownership feel out of reach. But if you’re struggling to come up with a large deposit, a guarantor home loan could be the solution that gets you on the property ladder sooner—with a little help from someone you trust.
What Is a Guarantor?
A guarantor is usually a close family member or friend who agrees to support your home loan application by offering their property or savings as additional security. If you’re unable to meet your repayments, the guarantor becomes responsible for covering the debt.
This option is especially useful for first-time homebuyers who:
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Have a low or no credit history
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Earn a modest income
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Recently started a new job
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Have a smaller deposit than required
🔗 Want to learn more about how much deposit you need for a home loan? Check out our guide.
How a Guarantor Can Help You Buy a Home Faster
Getting a guarantor involved in your home loan application offers several key benefits:
1. Enter the Property Market Sooner
One of the biggest advantages of a guarantor home loan is that it allows you to buy a home with a much smaller deposit—or even no deposit at all. Instead of waiting years to save 20%, you can leverage a guarantor’s support and start building equity immediately.
2. Avoid Paying Lenders Mortgage Insurance (LMI)
If you borrow more than 80% of a property’s value, lenders usually charge Lenders Mortgage Insurance (LMI). This cost can run into the thousands. But with a guarantor, you may be able to avoid LMI entirely, saving you a significant upfront expense.
3. Boost Your Home Loan Approval Chances
Lenders see guarantor-supported applications as less risky. If your credit score or deposit size isn’t ideal, having a guarantor can improve your chances of getting approved for a mortgage.
🔗 Check out our article on ways to improve your home loan application.
Who Can Be a Guarantor?
While anyone over 21 can potentially be a guarantor, lenders usually prefer someone with:
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A strong credit history
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Stable income and employment
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Existing assets such as property
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A close personal relationship with the borrower
That said, being a guarantor comes with serious obligations, so it’s essential that both parties have open and honest conversations before entering into a legal agreement.
Risks of Being a Loan Guarantor
Before agreeing to become a guarantor, it’s crucial to fully understand the risks involved. These include:
1. Full Responsibility for the Debt
If the borrower defaults, the guarantor must repay the full loan amount plus interest. The lender may even seize the guarantor’s property or assets if necessary.
2. Reduced Borrowing Capacity
Lenders treat a guarantor’s liability as a financial commitment. This can reduce their ability to borrow for their own needs in the future.
3. Credit Score Damage
If the borrower falls behind on repayments and the loan goes into default, the guarantor’s credit report will also be negatively impacted.
4. Relationship Stress
Money and family don’t always mix well. If things go wrong, the stress of the loan could cause serious relationship issues between the borrower and the guarantor.
🔗 Need other ways to help with a deposit? Read about alternatives to guarantor loans.
Final Thoughts
While a guarantor home loan can be a powerful tool to fast-track homeownership, it’s not without risks—especially for the guarantor. It’s important to:
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Get independent legal and financial advice
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Review the loan agreement thoroughly
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Make sure both parties understand the responsibilities involved
With the right planning and transparency, a guarantor loan could be the helping hand you need to achieve your homeownership goals sooner.
