Sydney brokerage Auspak gives the lowdown
First-home buyers have a conflicting relationship with lenders mortgage insurance (LMI).
On the one hand, LMI has evolved in the public consciousness from a financial burden to an invaluable tool for getting on the property ladder.
According to research conducted by Helia in 2024, LMI is “being repositioned as an enabler, a turn-key that empowers home buyers to enter the market sooner”.
Around 55% of first-home buyers used LMI to buy a house in 2024, up from 36% in 2023, per Helia’s research.
On the other hand, LMI, like any other type of insurance, does not come for free. It can easily cost $30,000 or more on a standard residential property, just for the privilege of paying a smaller deposit.
Nonetheless, LMI is a standard feature of the Australian home loan market, as used by most major lenders for high loan-to-value ratio (LVR) loans.
But under the right circumstances, there are ways to borrow up to 100% of the property price without paying LMI that brokers should be aware of.
The family solution
One solution favoured by Sydney-based family brokerage Auspak Home Loans is the family guarantor loan (FGL).
Guarantor loans, Auspak co-owner Blake Thorn (pictured) explained, allow a property buyer to use a family member’s property as additional security for their mortgage.
Instead of needing a full 20% deposit, the guarantor provides a limited guarantee, covering the deposit shortfall.
“This helps the borrower avoid LMI and, in many cases, borrow up to 100% of the property price without needing significant upfront savings,” Thorn explained.
Some, but not all, major lenders and second-tier banks off guarantor loans, “though policies and requirements vary”, he said, adding: “Traditional 100% home loans no longer exist, but guarantor loans provide a structured and responsible way for borrowers to secure a home loan without a large deposit.
“The key difference is that the borrower must still demonstrate strong repayment capacity, and the guarantee is usually limited to just the deposit shortfall, reducing risk for the guarantor.
With a younger, often more affluent client base eyeing the pricier end of the property market, up to 20% of home loans written at Auspak include a guarantor structure.
Thorn said that buyers turn to FGLs because they:
- Have the income to support a mortgage but lack the deposit
- Want to avoid paying LMI and keep their savings as a financial buffer
- Are struggling with rising property prices and need to buy sooner
FGLs are especially beneficial for:
- Buyers with strong income but limited savings – They can secure a property sooner without waiting years to save a full deposit
- Young professionals whose families want to assist – Parents can help without needing to gift money outright
- Buyers in competitive markets – They don’t need to delay while saving, ensuring they can secure a home now rather than later
“Many parents see guarantor loans as a way to help their children build financial independence while keeping their own assets intact,” said Thorn.
Beware the downsides
“While guarantor loans offer a fantastic opportunity, they do come with some risks,” said Thorn, citing three major concerns:
- Guarantor Liability: If the borrower defaults, the guarantor may be responsible for the guaranteed portion of the loan
- Financial Impact on the Guarantor: The guarantor’s ability to refinance or sell their own property may be limited
- Family Relationships: Financial strain can affect personal relationships, so clear communication and an exit strategy are crucial
Case study
Thorn recently helped a buyer in Clovelly who had the borrowing capacity but lacked a full deposit.
“Despite having stable income and strong serviceability, he was struggling to save a 20% deposit and was getting priced out of the market while waiting to reach his goal,” said Thorn.
By using an FGL, the client avoided over $20,000 in LMI, managed to secure a property within budget, and retained additional savings as a financial buffer.
Thorn explained: “The client purchased a property below market value and, just four months later, was able to release the guarantor after the property increased in value.
“Six months after the purchase, he completed cosmetic renovations, which further boosted the property's value. With the increased equity, we helped him complete an equity cash-out, providing the funds for a deposit on a high-yielding commercial property in Canberra – a small shop generating strong rental returns.”
This case, according to Thorn, “demonstrates how a well-structured guarantor loan can help buyers enter the market sooner, build wealth faster, and transition into commercial property investment within a short period, all while ensuring financial security for both the borrower and the guarantor”.
While they come with important considerations, “they offer a responsible and structured way to enter the property market without unnecessary delays”, he added.
“For mortgage brokers, understanding how to structure these loans effectively can be a huge advantage in helping clients overcome deposit hurdles and secure their first home.”
