Helping First Home Buyers With a Small Deposit

The Situation

A young couple with stable, dual incomes were ready to buy their first home — but their savings hadn’t kept pace with property prices. They had enough to cover a small deposit but not enough to avoid Lenders Mortgage Insurance (LMI), which would have added thousands of dollars to the cost of their loan.

Their parents wanted to help but weren’t in a position to gift or lend cash. What they did have was their own home, with a modest mortgage remaining and significant equity built up over the years. They were willing to use that equity to support their children’s loan. The question was how to structure it.

The Challenge

A family guarantee allows a parent to pledge the equity in their own property as additional security for their child’s home loan. This can eliminate the need for LMI and allow the purchase to proceed without a full 20% deposit saved.

The guarantee is limited in scope: it only covers the portion of the loan above 80% of the purchase price — not the full loan amount. Some lenders add a small buffer on top of that to maintain an 80% position on the guarantee itself. This means the parents’ exposure is capped and clearly defined from the outset.

The key requirement from a lender’s perspective is that the borrowers can demonstrate the ability to service the full loan on their own incomes — the guarantee supports the security position, not the income assessment. For this couple, with two solid incomes, that wasn’t a problem. The gap was purely on the deposit side.

A family guarantee isn’t a cash gift — it’s a structured, limited commitment that helps the next generation get started without asking parents to dip into their own funds.

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The Approach

To make the numbers concrete: on a $1,000,000 purchase, the buyers needed a $800,000 loan (80%) to avoid LMI. With only $60,000 saved, they were short — meaning they required a $1,000,000 loan, or 100% of the purchase price. The guarantee covered the $200,000 gap between the 80% mark and the full loan amount, secured against the parents’ property. To maintain an 80% Loan to Value Ratio (LVR) position on the guaranteed portion, the guarantee amount was $250,000. The structure was built around three clear steps.

Confirm Serviceability on the Buyers' Incomes Alone	Size the Guarantee Correctly	Plan the Exit Strategy for the Guarantee
The guarantee only supports the security position. The lender still needs the borrowers to service the full loan on their own. With dual incomes, this was comfortably demonstrated upfront, keeping the application clean.	The guarantee was limited to the shortfall above 80% of the purchase price, not the full loan. This kept the parents' exposure clearly defined and as small as possible, and gave them confidence that their own home wasn't being used to cover the whole loan.	Once the buyers reduce their loan balance, or the property grows in value, to a point where they hold at least 20% equity, the guarantee can be released. A clear repayment strategy was built in from the start so the parents' property wouldn't remain tied up any longer than necessary.

The Result

✓ First home purchased without a 20% deposit

✓ LMI avoided entirely

✓ Parents assisted without providing cash

✓ Guarantee limited to shortfall above 80% only

✓ Clear exit strategy structured from day one

✓ Buyers in the market sooner than they expected

The Takeaway

For this couple, the family guarantee meant the difference between buying now and waiting years for a bigger deposit. For the parents, it was a way to genuinely help without touching their savings or redrawing on their own loan. A well-structured guarantee is limited, purposeful, and has a clear path to release — it’s not open-ended exposure. Getting it right comes down to three things: demonstrating that the borrowers can service the loan independently, sizing the guarantee to cover only the deposit shortfall above 80%, and building an exit plan so the parents’ property isn’t tied up any longer than it needs to be.

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