How to Use a Guarantor or Family Equity to Get a Home Loan

What Is a Guarantor Home Loan?

A guarantor home loan allows a family member—most often a parent—to use their property equity or income to help you secure a mortgage. The guarantor provides additional security to the bank by pledging part of their home’s equity or guaranteeing repayments if you default. This support can bridge the gap between what you’ve saved and what lenders require for a deposit. In practice, this can mean accessing your first home sooner, avoiding low-equity fees, or qualifying for a higher loan amount. There are a few common models:

• Security guarantee: The guarantor uses part of their property’s equity as additional security.

• Family equity arrangement: Parents or relatives use home equity to help meet deposit requirements.

• Co-borrower or joint loan: The family member is on the loan as a borrower, not just guarantor.
  Each lender’s policy differs, so it’s crucial to understand the structure before committing.

How Banks Assess Family Equity Support

Family equity arrangements are relatively common across major NZ banks. For example, Westpac’s Family Springboard allows parents to use part of their home equity as security for a child’s loan. The borrower’s home remains in their name, while the parents’ property provides limited collateral. Regardless of structure, banks will always assess both the borrower and guarantor under responsible lending rules. This means:

• The guarantor’s income, assets, and debts are reviewed.

• Both parties must demonstrate they could manage repayments if needed.

• The borrower’s own affordability is still tested — the guarantor’s support helps with deposit and risk weighting but doesn’t replace income or credit requirements.
  In some cases, the guarantee is limited to a specific amount or percentage of the loan (for example, 20 %). That way, if the borrower defaults, the guarantor’s liability is capped.

Pros and Risks for Borrowers and Families

For borrowers, the upside is clear:

• Faster entry into homeownership — even with a smaller deposit.

• Access to lower interest rates or better terms by meeting 80 % LVR thresholds.

• Potential to avoid LMI or “low equity” fees.

For families acting as guarantors, the benefits include:

• Helping children or relatives into the market without gifting cash.

• Retaining ownership of their own property — equity is used as backing, not sold.

But the risks are real:

• If the borrower can’t meet repayments, the guarantor is legally liable for the guaranteed portion — including principal, interest, and any recovery costs.

• The guarantor’s property could be at risk if the loan defaults.

• It can affect the guarantor’s future borrowing power, especially if they plan to buy or refinance.

• Family relationships may become strained if financial issues arise.

Borrowers should remember: A guarantor helps you qualify — not removes responsibility. You’re still fully accountable for repayments and all loan obligations.

What Documents Do You Need?

For borrowers:

• Identification (passport or driver’s licence) and proof of address.

• Proof of income (payslips, employment contract, or tax returns).

• Bank statements showing deposit savings or contribution history.

• Existing debt statements (credit cards, personal loans, etc.).

For guarantors/family:

• Proof of property ownership and mortgage balance (for equity verification).

• Proof of income and assets (to demonstrate capacity).

• Credit report and liability disclosure.

• Legal documentation of the guarantee — banks require independent legal advice for guarantors before final approval.

Lenders typically provide:

• Guarantee forms outlining the terms and limit of liability.

• Security documentation (if property is being used as collateral).

• Requirements for independent legal advice to ensure informed consent.

Tips for Structuring It Safely

A family guarantee can be an incredible tool — but it must be structured smartly.

• Limit the guarantee: Ask the bank to cap it (e.g., to 20 % of the loan) rather than leaving it open-ended.

• Set a review timeline: Once the borrower builds enough equity (usually after reaching 20 %), request to remove the guarantee.

• Put it in writing: Draft a family agreement that outlines responsibilities, expectations, and the plan for release.

• Seek independent advice: Both parties should get separate legal and financial advice before signing.

• Avoid unnecessary complexity: If the guarantor’s risk is too high, consider alternatives such as a gifted deposit, co-borrowing, or waiting to save more.

Key questions to ask before proceeding:

• How much of the loan is being guaranteed, and for how long?

• What happens if I sell or refinance the home?

• How will this affect the guarantor’s ability to borrow or retire?

• When can the guarantor be released?

Tip: Once you’ve built up sufficient equity in your property, you can usually refinance and remove the guarantor’s obligation.

Final Take

Using a guarantor or family equity can be the difference between buying now and waiting years. But it’s not a decision to take lightly — the structure, legalities, and lender policies all matter. Talk to one of our mortgage specialists to find out which banks support family-backed loans and how to minimise risk for everyone involved.