With house prices climbing and borrowing conditions tightening, more Australians are turning to guarantor loans to get their foot on the property ladder. But what exactly does it mean to be a guarantor in 2025, and how have recent regulatory changes reshaped the landscape?
What Is a Guarantor and Why Are They in Demand?
A guarantor is someone—often a parent or close relative—who agrees to take responsibility for another person’s debt if that person can’t meet their repayments. In the context of home loans, a guarantor typically uses the equity in their own property to secure a portion of the borrower’s mortgage, allowing the buyer to avoid lender’s mortgage insurance (LMI) and sometimes access better rates.
- Family guarantee: Most common with first home buyers struggling to save a 20% deposit.
- Student loans: Less common, but sometimes required for international study loans.
- Small business finance: Guarantors can help start-ups or SMEs secure bank funding.
According to CoreLogic data, the median house price in Sydney surpassed $1.2 million in early 2025, making parental support more important than ever for young buyers. The Australian Prudential Regulation Authority (APRA) has noted a 15% uptick in guarantor-backed home loans since 2023, reflecting this growing trend.
The Risks and Rewards of Being a Guarantor
While helping a loved one buy a home can be deeply rewarding, acting as a guarantor is not without risk. If the primary borrower defaults, the guarantor is legally responsible for the agreed portion of the loan—potentially putting their own assets at risk.
Key risks include:
- Asset exposure: The guarantor’s property may be used as security and could be sold if the loan is not repaid.
- Credit impact: Being a guarantor may affect your own borrowing power and credit score.
- Relationship strain: Money matters can complicate family dynamics, especially if things go wrong.
On the flip side, successful guarantee arrangements allow first home buyers to:
- Enter the property market sooner
- Save thousands on LMI premiums
- Potentially access better loan terms
In 2025, lenders have tightened their requirements, conducting more rigorous serviceability assessments for both borrowers and guarantors. Some banks, like CBA and NAB, have introduced mandatory financial literacy sessions for potential guarantors, aiming to ensure they fully understand the obligations.
2025 Policy Updates: What’s New for Guarantors?
This year, several important policy changes have affected the way guarantor loans work in Australia:
- APRA Guidelines: Lenders must provide clearer disclosure documents outlining guarantor responsibilities and risks, as part of an industry-wide push for transparency.
- Cooling-off periods: New rules introduced in NSW and Victoria require a mandatory 7-day cooling-off period before a guarantee becomes binding, giving families more time to seek independent legal advice.
- Partial guarantees: Increasingly, lenders allow guarantors to limit their liability to a fixed dollar amount or percentage, rather than covering the entire loan.
- Release options: Borrowers can now apply to release guarantors earlier—typically once their loan-to-value ratio drops below 80%—thanks to revised loan assessment protocols.
For example, under CBA’s 2025 Family Guarantee policy, parents can restrict their guarantee to just the 20% deposit portion, dramatically reducing their risk exposure. Meanwhile, Macquarie Bank has rolled out an online dashboard for guarantors to monitor the status of their guarantee and receive alerts if the borrower’s repayments fall behind.
Steps to Take Before Becoming a Guarantor
Before agreeing to become a guarantor, it’s essential to:
- Review your own finances: Make sure you can cover the guaranteed amount without jeopardising your own financial stability.
- Seek independent legal and financial advice: Lenders are now required to recommend this, and for good reason.
- Clarify the guarantee terms: Know whether your guarantee is limited or unlimited, and understand the trigger events for liability.
- Consider future plans: Guarantor obligations may impact your ability to refinance, downsize, or borrow for other purposes.
Case study: In 2024, Lisa and Mark from Brisbane helped their daughter buy a unit by guaranteeing her 20% deposit. Thanks to the new cooling-off period, they reviewed the agreement with a solicitor and opted for a limited guarantee. Within two years, as the property’s value rose and her mortgage balance shrank, they were able to apply for release of the guarantee—demonstrating how the updated rules can protect families on both sides of the deal.
Conclusion: Guarantors Remain a Powerful Tool—With Caution
Being a guarantor can be a life-changing way to support loved ones, but it’s a serious legal and financial commitment. With 2025’s new protections and clearer guidelines, Australians have more tools than ever to make informed decisions. Whether you’re considering guaranteeing a loan or asking a family member for help, preparation and open communication are key to a successful outcome.
