How to Use a Family Pledge to Buy a Home in Australia with No Deposit

Buying a first home in Australia has become increasingly challenging as property prices continue to climb and saving for a deposit feels like a moving target. According to the Australian Bureau of Statistics (ABS), the average time to save a 20% deposit in capital cities now exceeds 10 years for median-income earners. For many, the dream of homeownership seems out of reach. However, a family pledge (also known as a family guarantee or guarantor loan) offers a practical pathway to enter the property market with no deposit, using the equity in a family member’s property as security.

This guide walks you through what a family pledge is, how it works, eligibility criteria, risks, and the step-by-step process to buy your first home without a cash deposit. We’ll focus on the Australian market, with insights relevant to 2024-2025 lending conditions.

What Is a Family Pledge?

A family pledge is a home loan arrangement where a family member (usually a parent) uses the equity in their own property as additional security for your home loan, rather than providing a cash gift. This allows you to borrow up to 100% (or even more) of the property’s purchase price without needing a deposit, while avoiding Lenders Mortgage Insurance (LMI).

In Australia, most lenders require a minimum 20% deposit to waive LMI—a costly insurance that protects the lender if you default. With a family pledge, the guarantor’s equity bridges the gap between your savings and the required 20% deposit. For example, if you buy a $600,000 home with a $30,000 (5%) deposit, the guarantor provides a guarantee for the remaining $90,000 (15%) to reach the 20% threshold. Some lenders even allow 100% borrowing plus costs, meaning you can enter the market with no cash contribution.

Key Terms to Know

• Guarantor: The family member providing their property as security.
• Equity: The difference between the property’s market value and any outstanding mortgage.
• LMI (Lenders Mortgage Insurance): Insurance paid by the borrower to protect the lender; typically required for loans above 80% loan-to-value ratio (LVR).
• Loan-to-Value Ratio (LVR): The loan amount divided by the property value, expressed as a percentage.
• Security Property: The property being purchased, plus the guarantor’s property (limited to the guaranteed amount).

How Does a Family Pledge Work?

A family pledge is structured as a loan split: the main loan is secured against your new home, and a smaller “guarantee” portion is secured against the guarantor’s property. The guarantee is usually limited to a specific dollar amount (e.g., 20% of your purchase price) rather than the entire guarantor property. This limits the guarantor’s exposure.

Here’s a simplified example:

Component	Amount
Property purchase price	$650,000
Your savings (deposit)	$0–$32,500 (0–5%)
Guarantor security (limited)	$130,000 (20%)
Loan amount	$617,500–$650,000
LVR (without guarantee)	95–100%
LVR (with guarantee)	80% (no LMI)

In this scenario, the lender considers the combined security to reduce the effective LVR to 80%, eliminating the need for LMI. You are responsible for repaying the entire loan. The guarantee is typically released once you’ve built enough equity in your home (e.g., paid down the loan to below 80% LVR or the property value increases), which can take 3–5 years.

Types of Guarantees

• Security Guarantee: The most common type. The guarantor offers their property as additional security for a limited amount.
• Income Guarantee: Less common; the guarantor’s income is used to demonstrate serviceability. Rarely used for no-deposit loans.
• Family Pledge/Beneficiary Guarantee: Specific products from some lenders where the guarantor’s equity is used, often with a term deposit or offset structure.

Major Australian lenders offering family pledge products include Commonwealth Bank, Westpac, ANZ, and NAB, as well as non-bank lenders. Each has its own naming: CBA calls it “Family Support Guarantee,” Westpac “Family Guarantee,” and ANZ “Family Pledge.”

Eligibility for a Family Pledge

Lenders have strict criteria for both the borrower and the guarantor to mitigate risk. As of 2024-2025, here are typical requirements:

For the Borrower (First Home Buyer)

• Age: Usually 18 years or older.
• Residency: Australian citizen or permanent resident; some lenders accept certain visa holders.
• Income: Stable employment with sufficient income to service the loan. Casual or contract workers may need a longer history.
• Credit history: Clean credit file; defaults or bankruptcy will disqualify you.
• Genuine savings: While a deposit isn’t required, some lenders want evidence of 3–5% genuine savings (or rental history) to demonstrate financial discipline. However, 100% loans with no savings are available through select lenders.
• Property type: Standard residential properties (houses, townhouses, apartments) in acceptable locations. Some lenders exclude high-density apartments or rural properties.

For the Guarantor

• Relationship: Typically parents, but some lenders accept siblings, grandparents, or even aunts/uncles. Must be a close family member.
• Age: Usually under 65–70 years (lenders consider retirement age and income).
• Property equity: Sufficient equity—usually at least 20% of the guarantor’s property value after the guarantee is deducted. If the property has a mortgage, the lender must consent.
• Income: Some lenders require the guarantor to demonstrate they can service their own debts and the guarantee if called upon. Retirees on pensions may be accepted if equity is high.
• Legal advice: Most lenders require the guarantor to obtain independent legal advice before signing.

Property Eligibility

• The security property (yours) must be in a location acceptable to the lender (typically not remote or mining towns).
• The guarantor’s property must be in a metropolitan or major regional area with stable valuations.
• Both properties must be structurally sound and insurable.

Step-by-Step Process to Buy with a Family Pledge

1. Assess Your Financial Situation

Before approaching a lender or broker, understand your borrowing capacity. Use online calculators from reputable sources like ASIC’s MoneySmart to estimate how much you can borrow based on your income, expenses, and debts. Consider ongoing costs like rates, insurance, and maintenance.

2. Have the Family Discussion

Talk openly with potential guarantors about the risks and responsibilities. A family pledge is a significant commitment. The guarantor should understand that if you default, they may be required to pay the guaranteed amount or risk losing their property. Discuss exit strategies: how long until the guarantee can be released, and what happens if property values fall.

3. Find a Suitable Lender and Product

Not all lenders offer family pledge loans, and terms vary. A mortgage broker can help compare products. Key features to compare:

• Maximum LVR (some allow 100% plus costs, others cap at 105% inclusive of LMI capitalisation).
• Guarantee release conditions (e.g., when LVR reaches 80% or after a minimum period).
• Interest rates and fees.
• Genuine savings requirements.

You can research lender policies on their official sites, such as Commonwealth Bank’s Family Support Guarantee or Westpac’s Family Guarantee.

4. Obtain Pre-Approval

Once you’ve chosen a lender, apply for conditional approval (pre-approval). You’ll need:

• Proof of income (payslips, tax returns).
• Identification.
• Details of your assets and liabilities.
• Guarantor’s property details and consent.

The lender will value both properties. The guarantor will need to provide mortgage statements if their property is encumbered.

5. Find Your Home and Make an Offer

With pre-approval, you know your budget. When you find a property, ensure it meets the lender’s criteria. Make an offer subject to finance and valuation. Once accepted, your lender will conduct a formal valuation of the purchase property.

6. Formal Loan Approval and Guarantor Documentation

The lender will finalise the loan offer. The guarantor must sign a guarantee agreement, and most lenders require a certificate of independent legal advice. This ensures the guarantor understands the obligations. A solicitor or conveyancer can provide this; the cost is usually borne by the borrower or guarantor.

7. Settlement

Your solicitor/conveyancer will coordinate settlement with the lender and the seller’s representatives. On settlement day, the loan funds are drawn, and you become the legal owner. The guarantee is now active.

8. Plan for Guarantee Release

Monitor your loan balance and property value. After a few years, when your LVR drops below 80% (through repayments and/or capital growth), you can request a release of the guarantee. The lender may require a new valuation. Once released, the guarantor’s property is free from the encumbrance.

Risks and Considerations

For the Borrower

• Higher debt: Borrowing 100% means larger repayments and more interest paid over the loan term.
• Negative equity: If property values fall, you could owe more than the home is worth, making it hard to refinance or sell.
• Family strain: Financial entanglements can cause tension if things go wrong.

For the Guarantor

• Liability: If the borrower defaults, the lender can demand payment of the guaranteed amount. If the guarantor can’t pay, they may force the sale of the guarantor’s property.
• Impact on borrowing: The guarantee reduces the guarantor’s available equity and may affect their ability to borrow for themselves.
• Release difficulty: The guarantee might not be released if property values decline or the borrower doesn’t meet repayment milestones.

Mitigation Strategies

• Limit the guarantee to the minimum required amount.
• Have a clear agreement (even informal) about the borrower’s responsibilities.
• The borrower should consider income protection insurance to cover repayments if unable to work.
• Regularly review the loan and property values to release the guarantee as soon as possible.

Alternatives to a Family Pledge

If a family pledge isn’t feasible, consider:

• First Home Guarantee (FHBG): A government scheme where the National Housing Finance and Investment Corporation (NHFIC) guarantees up to 15% of the loan, allowing eligible first home buyers to purchase with a 5% deposit and no LMI. See NHFIC’s official page.
• Regional First Home Buyer Guarantee: Similar to FHBG but for regional areas.
• Shared equity schemes: State government programs where the government co-purchases a share of the property.
• Saving a larger deposit: While slower, it avoids the risks of guarantees.

FAQ

Can I use a family pledge if my parents still have a mortgage on their home?

Yes, as long as they have sufficient equity. The lender will calculate the available equity after deducting their outstanding mortgage and the guarantee amount. For example, if the property is worth $800,000 and they owe $300,000, they have $500,000 equity. If the guarantee is $100,000, they still have $400,000 equity, which most lenders accept.

How long does the guarantee last?

Typically, the guarantee is released when your loan balance falls below 80% of your property’s current value (through repayments or capital growth). This can take 3–5 years, but it depends on market conditions. Some lenders require a minimum period (e.g., 12 months) before release.

What happens if property values fall and I can’t release the guarantee?

If values drop, the guarantee may remain in place longer than expected. In a worst-case scenario, if you default and the sale of your home doesn’t cover the debt, the lender will pursue the guarantor for the shortfall up to the guaranteed amount. This is why independent legal advice is crucial.

Can I use a family pledge for an investment property?

Most lenders restrict family pledges to owner-occupied properties, especially for first home buyers. Some may allow it for investment, but LMI waivers may not apply, and the guarantor requirements are stricter.

Is a family pledge the same as being a co-borrower?

No. A co-borrower is jointly liable for the entire loan and appears on the property title. A guarantor is only liable for the guaranteed amount and does not own any part of the property. The guarantee is a separate agreement.

References

1. Australian Securities and Investments Commission (ASIC), MoneySmart – Home loans and guarantees (accessed 2025).
2. National Housing Finance and Investment Corporation (NHFIC) – First Home Guarantee (accessed 2025).
3. Commonwealth Bank of Australia – Family Support Guarantee (accessed 2025).
4. Westpac Banking Corporation – Family Guarantee (accessed 2025).
5. Australian Bureau of Statistics (ABS) – Residential Property Price Indexes (latest release 2025).


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Disclaimer: This article is for informational purposes only and does not constitute financial or legal advice. You should consult a qualified professional before making any decisions.