For prospective first home buyers, one of the first trade-offs they’ll encounter when starting the buying process is whether to use the Government’s 5% Deposit Scheme or, where it’s an option, a family guarantee.
A family guarantee can still work to the buyer’s advantage in some cases, depending on how they want to manage their cash flow and whether the property they want actually qualifies under the 5% Deposit Scheme.
Why this isn’t a DIY decision
A family guarantee looks simple from the outside: Mum and Dad pledge some equity, the kids avoid Lenders Mortgage Insurance, everyone moves on. In practice, it’s one of the most lender-specific corners of home lending in Australia.
Every major bank treats it differently:
- ANZ caps the guarantor’s total exposure at 70% LVR against their own property, limits the guarantee itself to 50% of the guarantor’s security value, and won’t allow Interest Only on a guaranteed loan.
- CBA structures its Family Security Support as an 80/20 split (or 70/20 in postcodes where LMI kicks in earlier), and requires the guarantor to obtain independent legal advice with a signed statutory declaration.
- NAB has stopped accepting new broker-originated family guarantee applications altogether — brokers can only vary existing ones. That’s a live example of a policy shift that can quietly rule out an entire lender for a client who assumed the option was available everywhere.
- Westpac and St George restrict acceptable guarantors to parents, step-parents, legal guardians, children/step-children and siblings — aunts, uncles and grandparents are off the table, unlike at ANZ.
- ING requires a full financial assessment of the guarantor’s future position, not just their current one, modelling what happens if the borrower defaults years down the track.
None of that is available at a glance on a comparison website. It’s the kind of detail that determines whether a family’s plan is even possible with a given lender — let alone whether it’s the best structure for them. That’s the value a broker adds before a single application goes anywhere near a bank.
When the 5% Deposit Scheme should be ruled out
The Scheme is genuinely well-designed for a narrow purpose: a first-home buyer with a stable income, a property under the local price cap, and no other guarantor or shared-equity arrangement in play. Step outside that lane and it stops being fit for purpose.
A few scenarios where I’d steer a family away from the Scheme and toward a guarantee instead:
- They already have a guarantor arrangement in mind. This is the one people trip over most often. The Scheme’s own eligibility rules exclude any loan supported by a guarantor of any kind — family, income, or security. If the parents are contributing equity, the Scheme is off the table by definition, not by preference.
- The property is above the price cap. Price caps are set by suburb and postcode and can miss the mark badly in fast-moving markets — particularly for a young buyer who wants to purchase where they actually want to live, not just where the cap allows.
- They want to buy an investment property. The Scheme is strictly for owner-occupiers. A family guarantee has no such restriction.
- There are more than two buyers, or the ownership structure is unconventional. The Scheme caps at two applicants and has firm rules about joint applicants’ residential addresses matching after settlement. Guarantee structures are far more flexible.
- They want to renovate, or need funds beyond the purchase. The Scheme has no flexibility for this — it’s purchase price and purchase costs, full stop. A guarantee structured well can leave room for exactly this kind of post-settlement flexibility, depending on the lender.
- They’re refinancing, or the deal has any complexity to it (construction, land banking, staged builds). Scheme rules around refinance, construction and off-the-plan purchases are tight and specific. A guarantee, negotiated with the right lender, usually has more room to move.
Where a family guarantee actually delivers the client’s real objective
Here’s the strategic case, and it’s the one worth having with clients before the loan structure is even discussed: the objective usually isn’t “get a mortgage.” It’s get into the market now, improve the asset, and trade up later — all while getting the guarantor released as soon as it’s sensible to do so.
A family guarantee, structured properly, can support that whole arc:
- Getting in now. With interest rates and prices where they are, waiting to save a full deposit often means chasing a market that’s moving faster than the client’s savings rate. A guarantee lets a client buy today, using the parents’ equity instead of years of additional saving.
- Avoiding LMI without gifting cash. Parents don’t need to hand over money — they’re providing security, not capital. That keeps the family’s overall liquidity intact.
- Preserving cash for renovation or improvement. Because a guarantee doesn’t lock up the parents’ funds as a cash contribution the way a deposit gift does, the client can be left with more of their own capital free for renovations, furnishing, or a buffer — depending on how the specific lender’s retained savings and loan structure rules apply. This is genuinely lender- and client-specific, which is exactly why it needs to be modelled properly rather than assumed.
- Building equity toward release. Every major lender ties guarantee release to the borrower’s own equity position reaching a set LVR threshold (commonly 80%) through repayments and/or capital growth. A renovation that lifts the property’s value can accelerate that release — turning “get the guarantor off the title” from a passive waiting game into an active strategy.
- Setting up the next move. Once released, the client holds a genuinely improved asset with real equity, in a position to trade up on their own serviceability — rather than being locked into a starter home because that’s all the Scheme’s price cap would stretch to.
The conversation to start with
The mistake is starting with “should we use a guarantor?” That’s a product question, and it invites a product answer.
The better starting question is: what’s the best strategy for this family, given where they want to end up — not just where they want to start?
The loan is the vehicle. The strategy comes first. And because every lender’s guarantee policy is different — sometimes dramatically so — getting that strategy right isn’t something a family should be working out alone from a bank’s website. It’s exactly the conversation a broker exists to have.