A guarantor mortgage allows a parent or family member to support your home loan by agreeing to repay the debt covered by their guarantee if you cannot. Their property may be used as additional security, helping you overcome a deposit shortfall when buying your first home.
Having a guarantor does not guarantee approval. You still need to afford the mortgage repayments and meet the lender’s other requirements. Any property your guarantor offers as security may be at risk if the obligations cannot be met.
This guide explains how a guarantor mortgage works, what lenders consider, the risks for your family and the alternatives worth discussing before anyone commits.
Being a guarantor means accepting legal responsibility for debt covered by a guarantee if the borrower does not meet their obligations.
For a first-home purchase, this may involve your parents or another family member allowing their property to be used as additional security for your home loan. This can potentially help when you have enough income to support the proposed lending but your available deposit or security does not meet the lender’s requirements.
A guarantee is not money paid towards the purchase and does not reduce the amount you need to borrow. You remain responsible for making your mortgage repayments.
The guarantor’s potential liability depends on the wording of the guarantee and lending documents.
A limited guarantee sets out agreed limits on the guarantor’s liability. A stated amount may be accompanied by interest and costs, depending on the documents.
The amount covered and the debts covered are separate questions. An “all obligations” clause may extend to other current or future debts with the lender.
Your guarantor should obtain independent legal advice on the exact limits, debts and security covered before signing.
Lenders consider both the first-home buyer’s circumstances and the proposed guarantor’s position. Having equity available is only one part of the assessment.
| Your position as the first-home buyer | Your proposed guarantor’s position |
|---|---|
| Your income and ability to meet the proposed mortgage repayments | Their ability to meet the obligations covered by the guarantee |
| Your existing debts, expenses and financial commitments | Their existing mortgage, debts and other commitments |
| Your savings, deposit contribution and credit conduct | Their financial position and any property offered as security |
| The home you want to buy and the total amount you need to borrow | Whether the proposed family support meets the lender’s requirements |
| Whether the complete application meets lending criteria | How the commitment could affect their future financial position |
A guarantee may help address a deposit or security shortfall. It should not be treated as a way to make an unaffordable mortgage affordable or bypass other lending requirements.
For a broader explanation of the approval assessment, read our guide to Mortgage Lending Criteria in New Zealand.
TALK TO A FIRST HOME LOAN ADVISER
A guarantor may help some first-home buyers who have less than the deposit ordinarily required by a lender. However, you should not assume that having a guarantor automatically provides access to a no-deposit home loan.
Whether a small or no cash contribution can be considered depends on the lender, the proposed security, the property being purchased and the strength of the complete application.
You must still be able to afford the total amount borrowed. A guarantee provides support to the lending arrangement; it does not reduce the purchase price or replace the debt you need to repay.
Before relying on family support, establish:
For general deposit information, read How Much Deposit Do You Need to Buy a House in NZ?.
Angela Downie, Financial Adviser at Platinum Mortgages, explains:
“One first-home buyer I helped had saved around a 5% deposit but did not have enough to meet the lender’s full deposit requirements. Their parents owned their home mortgage-free and had sufficient equity to provide additional security for part of the loan.
The buyers still had to demonstrate that they could afford the mortgage repayments themselves. The guarantee helped bridge the deposit gap; it was not a solution to an unaffordable loan. It was also important to consider whether the parents had enough usable equity, whether the commitment was appropriate for their own financial circumstances and future plans, and how they could eventually be released from the guarantee.
I explain from the outset that a guarantor is not automatically released after a set period. In this case, once the buyers had repaid the guaranteed portion and built enough equity in their own home to meet the lender’s requirements without the additional security, the parents were released from the guarantee and the mortgage continued solely in the buyers’ names.”
Acting as a guarantor can make a real difference in helping a loved one buy their first home. However, the commitment is significant and should be considered carefully.
Important risks include:
Responsibility for debt: The guarantor could be required to repay the amount covered by the guarantee, together with any applicable interest, fees or costs.
Property placed at risk: If the guarantor’s home or another property is used as security and the obligations cannot be met, that property could be at risk since the lender may be able to sell the property to recover the debt.
Being approached for payment: The lender may be able to pursue the guarantor when the borrower does not meet their obligations. It should not be assumed that the lender must sell the buyer’s property first.
Reduced future flexibility: The guarantee may affect the guarantor’s ability to borrow, refinance, move home or use their equity for another purpose.
Retirement consequences: Parents approaching or already in retirement need to consider whether the commitment could affect their future security and plans.
Family pressure: Financial difficulties, different expectations or a delayed release can put strain on family relationships.
Independent information for guarantors: For further guidance about the obligations and risks involved, read the Banking Ombudsman Scheme’s guide to guaranteeing someone’s debt and Consumer Protection’s information for guarantors.
Discuss what your parents are comfortable offering, how long they expect the arrangement to remain in place and how it could affect their own plans.
Useful questions include:
Your guarantor should receive their own independent legal advice before signing. They need enough information, time and freedom to make an informed decision without pressure.
A guarantor may be released when the lender agrees that their support is no longer required.
An LVR of around 80% on your home alone, approximately 20% equity, can be a useful point to discuss release. However, this is not a universal requirement or an automatic release trigger.
The lender will consider the remaining loan, the property value it accepts, your ability to afford the repayments and its lending requirements. Paying down the mortgage may help; property values can rise or fall.
Discuss the intended review and exit plan before entering the arrangement. Do not assume the guarantee has ended until the lender formally confirms release. Stopping it from covering future borrowing is different from being released from existing liability.
There are several ways parents or family members may help a first-home buyer. These arrangements are not interchangeable.
| Option | How it may help | Important consideration |
|---|---|---|
| Guarantor | A family member supports the lending, potentially using their property as additional security. | They accept liability under the guarantee, and property offered as security may be at risk. |
| Genuine gifted deposit | A family member provides money that is not expected to be repaid. | The family member gives up access to that money. The gift may need to be confirmed and documented. |
| Family loan | A family member lends money towards the purchase. | The debt and repayment expectations must be disclosed. Required repayments may affect mortgage affordability. |
| Co-borrowing | A family member becomes a borrower on an agreed loan. | This creates direct borrowing obligations and is different from acting only as a guarantor. Liability should not be assumed to be divided equally. |
The right option depends on what the buyer needs, what the family member is comfortable providing, and how the arrangement affects everyone involved.
Legal, tax, relationship-property and estate-planning questions should be referred to appropriately qualified professionals.
If a guarantor is unavailable or unsuitable, consider the other family-support options explained above, saving a larger deposit or reviewing your intended purchase price.
If a bank has declined your application, first understand why the bank has said no. A different form of family support may not resolve the underlying issue.
In some circumstances, non bank lending options may be worth assessing. Affordability, security, interest rates, fees and conditions still need careful consideration to establish whether an option is suitable.
Angela helps arrange guarantor-supported home loans and can assess whether family assistance is worth exploring for your circumstances.
The first step is identifying what is holding the purchase back. It may be the available deposit, the proposed mortgage repayments, another lending requirement or a combination of factors.
Angela can then help you understand:
Angela’s mortgage advice does not replace the independent legal advice your proposed guarantor should obtain.
You do not need to arrive with a completed arrangement. An early discussion may help you and your family understand whether there is a realistic pathway before anyone makes a commitment.
Learn more about Platinum Mortgages’ First Home Loan advice and application support.
Potentially, but being retired or owning a mortgage-free home does not automatically establish eligibility.
The lender will need to consider the proposed guarantor’s complete financial position and ability to meet the obligations covered by the guarantee. The possible effect on their retirement income, property and future plans should also be considered carefully.
An existing mortgage does not automatically rule out a guarantor arrangement.
The lender may consider the available equity, existing lending, income, expenses and other commitments. If your parent’s mortgage is with a different lender, changes to their existing lending or security may be required.
The practical options will depend on the lenders involved and the complete circumstances.
Not automatically. Acting as a guarantor is different from becoming a co-owner or co-borrower.
Ownership, borrowing and guarantee obligations depend on the legal and lending documents used. Everyone involved should understand their actual position before proceeding.
Possibly. Parents are common guarantors for first-home buyers, but acceptable relationships and arrangements vary between lenders.
Do not assume that another relative or family member will automatically be accepted. Their financial position, relationship to the buyer and the proposed support will need to be assessed.
It can help, but not automatically.
Where a lender accepts additional property security, the arrangement may help you qualify for special interest rates or reduce or avoid low-equity charges. The outcome depends on the lender’s assessment, loan structure and pricing criteria.
Having a guarantor does not itself guarantee the lowest rate or remove every fee. Confirm the rates and charges applying to the proposed lending, and weigh any saving against the financial commitment your guarantor would make.
A guarantor can help some first-home buyers overcome a deposit or security barrier, but the arrangement must work for both the buyer and the family member providing support.
Before asking your parents to commit, speak with Angela about what is holding your first-home purchase back. She can help you understand whether the obstacle is your deposit, the mortgage repayments or another lending requirement—and whether a guarantor arrangement or another form of family support is worth exploring.
TALK TO A FIRST HOME LOAN ADVISER
Platinum Mortgages New Zealand Limited (FSP752271) is a Financial Advice Provider licensed and regulated by the Financial Markets Authority. Angela Downie (FSP742251) is a Financial Adviser at Platinum Mortgages who provides mortgage advice to New Zealand borrowers under that licence and has worked in the financial industry since 2006.
For guarantor-supported first homes, Angela helps buyers understand how family support, mortgage affordability and the proposed guarantor’s position fit together before anyone enters a significant financial commitment.
Read our client reviews and learn more about Platinum Mortgages’ industry recognition and awards.
This guide provides general information rather than personalised financial or legal advice. Lending criteria and guarantee terms vary. A proposed guarantor should obtain independent legal advice before signing.
