Bank of mum and dad: Know the risks of being a guarantor

Homebuyers now need a six-figure deposit to buy an average house in every state or territory, according to new research and that’s putting pressure on older Aussies to help their adult children into the property market.

Analysis by shows that even buyers in Australia’s cheapest property market – the Northern Territory – must find a whopping $104,340 to cover a 20 per cent deposit for a median house priced at $521,700. In NSW, buyers need to save $233,500 to save a 20 per cent deposit and avoid lenders mortgage insurance.

Many parents – often retirees – are stepping into the financial void to support their children – by lending money or by going guarantor on a home loan.

Business analysts Digital Financial Analytics estimate that the bank of mum and dad is the ninth-largest mortgage lender in Australia, stumping up an average of $90,000 per child.

But it’s not just about cash. Many people are acting as guarantor on their children’s housing loans. It’s an option that seems less risky and a neat solution, but can have devastating consequences. Especially as many retirees and older Australians may be struggling with their own housing costs.

Around one in three (29.8 per cent) respondents in the YourLifeChoices Insights Survey 2022 said mortgage or rent was the biggest drain on their savings. Household expenditure such as maintenance and utilities was next at 22.3 per cent.

While 71 per cent of respondents owned their home outright, 43 per cent of that number said they were not confident they could maintain their home either physically or financially.

Still, many older Australians are stepping up as guarantors for their children’s first homes.

Guarantor loans have the advantage of avoiding Lenders’ Mortgage Insurance. This can save thousands of dollars for the person taking out a housing loan. However, there are key considerations to take into account if you do decide to act as guarantor on a loan.

What are the risks of going guarantor?

If you think taking such a step is going to seriously affect your lifestyle, then don’t do it.

A home loan is a huge financial drain and things can go wrong at any age. You should consider the impact of the worst possible scenario. Could you go bankrupt or lose your own home if your child defaults on the loan? You may have to repay the entire debt if they can’t make loan repayments.

Don’t let your emotions and loyalty to family get the better of you; this is one time in your life a cold, hard eye is needed.

What are the warning signs?

Your child may ask you to act as guarantor for a variety of reasons. A lender asking for a guarantor may have already decided the applicant does not meet its criteria. Should you shoulder the risk of your child’s inability to satisfy loan requirements?

It’s also worth taking into account the child’s relationships. What would happen if the person taking out the loan has a relationship breakdown. The ex-partner may end up being entitled to half the property. Will you be comfortable with such a situation?

Will it affect your credit rating?

Going guarantor could also impact the likelihood of you being approved for a loan. Many lenders may not approve any further finance.

You may also end up with a bad credit report if either you or the borrower can’t pay back the loan.

Set clear and concise terms and consult a lawyer and/or accountant if you feel unsure about your position.

You can also mitigate your risk and shore up your confidence in the deal by taking out insurance on either yourself or the person taking out the loan. Talk to a financial adviser or insurance broker about that option.

If you don’t want to go guarantor for a whole loan, maybe you could agree to a set sum instead. Some lenders also allow a one-off gift to be used for the deposit.

Maybe the kids can just wait. YourLifeChoices research shows 71 per cent of respondents plan to leave an inheritance anyway.

Have you acted as a guarantor for a loan? Would you consider it? Why not share your opinion in the comments section below?

Also read: How to avoid big financial mistakes in retirement

Jan Fisher
Jan Fisher
Accomplished journalist, feature writer and sub-editor with impressive knowledge of the retirement landscape, including retirement income, issues that affect Australians planning and living in retirement, and answering YLC members' Age Pension and Centrelink questions. She has also developed a passion for travel and lifestyle writing and is fast becoming a supermarket savings 'guru'.


  1. Only ever go guarantor if you can afford to lose the full amount of the guarantee.
    If you can’t then don’t do it under any circumstances.
    I have never done it but an old lady across the road lost her house because of her son.
    Made homeless at 80.

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