Parents and family members increasingly want to help their loved ones get into the property market. There are many ways to provide this support, from financial contributions to legal security, and becoming a guarantor. It can be a fantastic way to help people into homeownership, but it is not without its risks. It is a serious legal commitment that both parties must have a solid understanding of, to protect the buyer, the guarantor, and the relationship between these two parties.
In real estate terms, a guarantor is someone who agrees to be legally responsible for another person’s loan if they default. When you sign a guarantee, you’re entering a binding legal contract with the lender. If the borrower fails to make repayments, the lender can demand that you pay the full outstanding debt, including interest, fees, and legal costs.
What does it mean to be a real estate guarantor?
Importantly, the lender usually has the right to pursue the guarantor immediately, without having to first exhaust recovery options against the borrower. In some cases, this can include enforcement actions like seizing assets or placing a mortgage over the guarantor’s property.
The most common scenario in Australia around who is serving as guarantors are parents guaranteeing a child’s home loan. Parents may be able to use their own property as collateral and may also be able to guarantee a portion of the loan to avoid things like lenders mortgage insurance (LMI).
If you’re not sure what that all means, you can learn more about guarantor risks and responsibilities on Moneysmart. An Australian Government website with independent financial guidance.
Benefits of becoming a property loan guarantor
Becoming a guarantor can be a meaningful way to help a loved one secure a home loan or access credit they might not qualify for on their own. It can allow them to enter the property market sooner, avoid lenders mortgage insurance (LMI), or secure better loan terms. For parents, it’s often seen as a way to support children financially without gifting or loaning money directly. When structured carefully, limited guarantees can minimise your exposure while still providing significant assistance.
Risks of becoming a guarantor
The biggest risk of being a guarantor is that you’re legally liable if the borrower defaults as part of your guarantor obligations in Australia. You may be required to repay the loan in full, including interest and fees, and in secured arrangements, the lender can claim against your home or other assets. It can also affect your ability to borrow in the future and place strain on personal relationships. Many guarantors underestimate how hard it is to exit a guarantee once signed, even if their financial circumstances change.
Guarantor vs co-borrower: what’s the difference?
While both guarantors and co-borrowers help someone else secure a loan, the legal responsibilities and risks involved are very different. A guarantor agrees to step in if the borrower defaults but does not receive any benefit from the loan and usually doesn’t have ownership in the property. Their role is passive unless things go wrong, at which point their liability can be substantial.
A co-borrower, on the other hand, applies for the loan jointly and shares equal responsibility for repayments from day one. They also typically share ownership of the property, which means their name appears on the title. A co-borrower’s credit rating, income, and assets are all assessed when the loan is approved, and their financial position is directly impacted by the loan’s performance.
Understanding this distinction is critical. Guarantors may underestimate how little control they have over the property or the loan yet still bear serious legal consequences. This is one reason why lenders in NSW and QLD insist on independent legal advice before a guarantor can sign, unlike co-borrowers, who are generally expected to understand their legal position from the outset due to their full participation in the transaction.
Types of guarantees in real estate context
If you’re considering becoming a guarantor, the first step is to understand what kind of arrangement is going to work the best. Here is a quick guide to the types of guarantees that may apply to real estate purchases:
Limited Guarantee
A limited guarantee caps the guarantor’s liability to a specific amount or portion of the loan, commonly just the 20% deposit required to avoid Lenders Mortgage Insurance (LMI). This structure is popular in family guarantees because it helps minimise the guarantor’s financial exposure while still satisfying the lender’s requirements. Limited guarantees can also be limited in time or linked to a specific part of the loan (e.g., principal only).
Secured Guarantee
A secured guarantee means the guarantor backs the loan by offering a tangible asset, most often real estate, as security. This usually involves the lender registering a mortgage or caveat over the guarantor’s property. If the borrower defaults on the loan, the lender can take legal action for debt recovery. This is the most common type of guarantee in real estate and poses significant risk to the guarantor’s personal assets.
You can see how a family guarantee works with a major Australian lender like CommBank to understand the process and structure in more detail.
Unsecured Guarantee
In an unsecured guarantee, the guarantor provides a promise to repay without offering any collateral. These are rare in property transactions because lenders generally require stronger security. While the guarantor’s assets aren’t immediately at risk through a mortgage or caveat, the lender can still pursue legal action to recover funds, potentially leading to judgment debts and asset seizure down the track.
Legal Essentials in Real Estate Guarantees
Because acting as a guarantor is a significant legal commitment, it’s essential to get independent legal advice before signing anything. In both Queensland and New South Wales, it’s common practice and often a lender requirement for the guarantor to seek legal advice from a solicitor who is not involved with the borrower. This process helps make sure the guarantor genuinely understands what they’re agreeing to, including all financial risks and legal obligations. Many banks and lenders won’t proceed with the loan until a legal advice certificate has been completed and submitted. Along with obtaining legal advice, guarantors should also take time to understand key documents that form part of the agreement.
Signed Guarantee Certificates
As part of the loan documentation, guarantors are usually required to sign a Certificate of Independent Legal Advice or a similar document. This certifies that the guarantor has received proper legal advice, understands the nature and effect of the guarantee, and is signing freely and voluntarily. These certificates protect both the lender and the guarantor and may be used as evidence if the guarantee is later challenged in court.
Title Searches & Mortgage Registrations
If the guarantee is secured by the guarantor’s property, the lender may lodge a mortgage or caveat on the title. This means the property cannot be sold or refinanced without the lender’s consent. Title searches will reflect this interest, and removal of the guarantee later on (e.g., after loan repayments reduce the lender’s risk) generally requires a formal release and discharge process. Guarantors should always understand how their property will be affected before signing.
Why expert guarantor legal advice matters
Clarity on Your Legal Position
Seeking independent legal advice for guarantors gives you a clear understanding of exactly what you’re committing to as a guarantor. They will walk you through the guarantee document, explain your legal obligations, and outline the extent of your financial exposure including what happens if the borrower defaults or if your circumstances change.
Customisation of Guarantee Terms
Legal professionals can often assist in negotiating the terms of the guarantee, including limiting your liability to a set amount or timeframe. They may also be able to help include specific protections, such as early release clauses or security exclusions, that reduce the personal and financial risk to you.
Protection Against Unfair or Risky Agreements
A solicitor is trained to identify red flags in loan or guarantee documents, including clauses that may unfairly favour the lender or leave you exposed. They can flag issues such as broad or “unlimited” guarantees, ambiguous repayment terms, or security arrangements that could put your assets in jeopardy.
Documentation and Legal Evidence
Receiving and properly documenting independent legal advice provides crucial evidence that you entered the agreement freely and with full understanding. This can be particularly important if the guarantee is ever challenged in court—helping protect you from claims of undue influence, coercion, or misunderstanding.
Peace of Mind
Knowing you’ve received clear, independent home loan guarantor advice provides confidence that you’ve made an informed decision. It helps ensure you’re not exposing yourself to unnecessary financial risk or emotional stress and that the arrangement genuinely suits your circumstances and intentions.
At Bush to Beach Legal, we specialise in providing tailored, practical legal advice for guarantors in QLD and NSW. Whether you’re supporting a home loan guarantee in New South Wales or entering into a property guarantee in NSW or Queensland, our team offers clear, independent guidance to help you understand your rights and minimise your risk.
Our experienced Queensland guarantor solicitors and NSW guarantor legal advice professionals work closely with you to ensure your obligations are clear and that your property interests are protected. With deep knowledge of both NSW and Queensland property law for guarantors and the legal nuances of family guarantees, we offer remote and in-person services across regional areas, making it easy to get the right advice, wherever you are.
