Bank of Mum and Dad: How to Help Your Kids Buy Without Risking Your Own Home
Key Takeaways
• There are several ways to help, from a cash gift to going guarantor, each with a different level of risk to you.
• Acting as guarantor can put your own home on the line, so it is the option to approach most carefully.
• A limited guarantee, a clear exit plan, and independent advice are the key protections.
• Helping your child should not come at the cost of your own financial security.
With house prices and deposits where they are, more parents than ever are helping their children into a first home. It is a generous and increasingly normal thing to do. But how you help matters enormously, because some forms of help simply gift or lend money, while others put your own home and financial security on the line. The good news is that you can be a real help to your kids while still protecting yourself.
This guide looks at the main ways parents help, the risks of each, and the practical steps that let you support your child without putting your own home at risk. It is general information, not financial or legal advice. Because guaranteeing a loan is a serious legal commitment, independent legal and financial advice is essential, and we will explain where it fits.
Helping your child buy is a big decision, and it helps to talk it through with people who do this every day. If you would like to see how we help families buy together, we are here, with no cost and no pressure.
The Main Ways Parents Help
There is no single way to help, and the options differ a lot in how much they expose you. The most common are:
• A cash gift. You give your child money toward their deposit. Your downside is capped at what you give, and your home is not involved. Lenders usually want a short letter confirming it is a gift, not a loan.
• A family loan. You lend money and expect it back. This needs to be documented, and lenders may count it as a debt that reduces what your child can borrow.
• Going guarantor. You use the equity in your own home as extra security so your child can borrow with a small deposit and avoid lenders mortgage insurance (LMI). You do not hand over cash, but your home backs part of their loan.
A gift caps your risk at the amount given; going guarantor is the option that can put your home on the line, so it deserves the most thought.
What Being a Guarantor Really Means for You
Because guaranteeing is the most powerful form of help and the riskiest, it is worth being completely clear about what you are taking on.
As a guarantor, you are promising the lender that if your child cannot repay, you will cover the guaranteed portion. You do not give money up front, but you allow the lender to register a security over your home for that amount. If your child defaults and the sale of their property does not clear the debt, the lender can call on you, and in the worst case that can mean selling your own home or other assets. The guarantee also sits on your credit file, which can reduce your own ability to borrow while it is in place. None of this is meant to frighten you off; it is simply what you are agreeing to, and knowing it lets you manage it well.
How to Help Without Putting Your Home at Risk
The risks of guaranteeing are real, but they can be managed with a few non-negotiable protections. If you go down this path, insist on these:
• A limited guarantee. Never guarantee the whole loan. Cap it at a specific, fixed amount, usually just the portion needed to get your child to an 80% loan-to-value ratio (LVR) and avoid LMI. Your liability is then capped and cannot grow.
• A clear exit plan. A guarantee should not last the life of the loan. Agree from the start that it will be released once your child's loan drops below 80% of their property's value, through repayments and any growth, often within a few years.
• Independent legal and financial advice. You will be required to get independent legal advice before signing, from a solicitor who is not your child's. Take independent financial advice too, so you understand the effect on your own position.
• A family agreement. Beyond the bank's paperwork, a simple written agreement with your child about expectations, and what happens if things get tight, protects the relationship as much as the money.
With these in place, you can give your child a real leg-up while keeping your own security intact. The decision should never be made under pressure.
Consider the No-Risk Options First
Before offering your home as security, it is worth checking whether your child can get there without it.
Sometimes the safest help is the kind that puts nothing of yours at risk. If your child is a first home buyer, they may qualify for the government's 5% Deposit Scheme, which lets them buy with a small deposit and no LMI, with no family member taking on any liability at all. A cash gift toward their deposit, if you can comfortably afford it, is another way to help that caps your exposure at the amount you give. Going guarantor is powerful, but it is not always necessary, so it is worth exploring the alternatives first. A broker can help you and your child compare the options side by side.
Protect Your Own Position
Whatever you decide, the guiding principle is simple: help should not jeopardise your own security.
Think carefully about your own circumstances, your retirement, whether you still have a mortgage, and your income, before committing. Only offer what you could afford to lose, and make sure your child can comfortably make the repayments on their own income, without relying on you. It is also worth updating your Will, since a guarantee that is called on after you are gone can affect how fairly your estate is divided between your children. Helping one child is a wonderful thing, but it should not quietly disadvantage you or your other children. A financial adviser can help you weigh all of this.
A Real-World Example: Helping Safely
Here is how a careful arrangement can look, with round figures. Treat it as a guide only.
Pete and Janine wanted to help their daughter Mia buy her first home, but they did not want to risk the home they had worked hard to pay off. Mia had a steady income and a small deposit, but not the full 20%.
After getting independent legal and financial advice, they agreed to a limited guarantee, capped at just the amount Mia needed to reach an 80% loan-to-value ratio and avoid LMI, rather than guaranteeing her whole loan. They set a clear goal to have the guarantee released within a few years, once Mia's repayments and any growth lifted her equity. Mia comfortably serviced the loan on her own income, and Pete and Janine's home was never exposed beyond the capped amount.
Where to Read More
Going guarantor is a serious commitment worth understanding fully. MoneySmart explains what going guarantor really means and the risks to weigh up before you sign.
Frequently Asked Questions (FAQs)
Can I help my child buy without going guarantor?
Yes, and it is often the safer choice. A cash gift toward their deposit caps your risk at the amount you give and keeps your home out of it. A documented family loan is another option, though lenders may treat it as a debt. Your child may also qualify for the government's 5% Deposit Scheme as a first home buyer, which involves no family risk at all. Going guarantor is just one option among several, and a broker can help you compare them.
What exactly is at risk if I become a guarantor?
The amount you guarantee. If your child cannot repay and the sale of their home does not clear the debt, the lender can pursue you for the guaranteed portion, and in the worst case that can mean selling your own home or other assets. The guarantee also appears on your credit file, which can reduce your own borrowing ability while it is in place. This is why limiting the guarantee and getting proper advice matter so much. A solicitor will explain exactly what you are liable for before you sign.
How do I limit my risk as a guarantor?
The single most important step is to insist on a limited guarantee, capped at a specific fixed amount rather than the whole loan, usually just the portion needed to get your child to an 80% loan-to-value ratio and avoid lenders mortgage insurance. Add a clear plan to be released from the guarantee within a few years, a written family agreement, and independent legal and financial advice. Together these keep your exposure contained and predictable. A broker can help structure the arrangement this way.
Can I be released from the guarantee later?
Usually yes, and you should plan for it from the start. Once your child's loan drops below 80% of their property's value, through a combination of repayments and any growth in value, you can generally apply to have the guarantee released, often within a few years. It does not have to last the life of the loan. Setting this as a shared goal gives your child something clear to work toward. A broker can tell you when a release is likely to be possible.
Do I have to get legal advice?
Yes. Lenders require guarantors to obtain independent legal advice before signing, from a solicitor who is separate from your child's. Their job is to make sure you understand exactly what you are agreeing to and the risks involved. It is wise to get independent financial advice as well, so you understand the effect on your own position and retirement. Never sign under pressure; if you feel rushed or unsure, that is a reason to pause, not proceed.
Is a cash gift better than going guarantor?
It depends on your situation, but a gift is generally lower risk for you. With a gift, your downside is capped at the amount you give, and your home is never involved. Going guarantor lets your child borrow without parting with your savings, but it puts your home on the line for the guaranteed amount. If you can comfortably afford a gift, it is often the simpler and safer way to help. A financial adviser can help you decide what suits your circumstances.
The Bottom Line
Helping your children into a home is a generous thing to do, and there are several ways to do it: a cash gift, a family loan, or going guarantor. They are not equal in risk. A gift caps your downside at what you give, while going guarantor can put your own home on the line for the amount you guarantee. That does not make guaranteeing a bad idea; it makes it one to approach with care.
If you do go guarantor, protect yourself with a limited guarantee, a clear exit plan, a family agreement, and independent legal and financial advice, and never sign under pressure. Above all, only help in a way that leaves your own security intact. If you would like to talk through the safest way to help your child buy, we are here for both of you, with no cost and no pressure.