The Bank of Mum and Dad: 3 Smart Ways Families Help First Home Buyers Buy Property in Australia

For many first home buyers, entering the property market today is far more challenging than it was for previous generations. While strong incomes and disciplined saving remain important, the gap between wages and property prices in major cities like Sydney has widened significantly.

As a result, family support, otherwise known as the “Bank of Mum and Dad”, has become an increasingly common way to help buyers bridge that gap.

Several structural factors are driving this trend:

1. Property Prices Have Outpaced Wage Growth

Over the past two decades, property prices have risen faster than household incomes. While many buyers can service a mortgage, saving a deposit has become significantly harder.

2. Higher Serviceability Buffers

Borrowing capacity is assessed using interest rate buffers several percentage points above current rates. These buffers help protect borrowers against future rate rises but can reduce the amount buyers are able to borrow.

3. The Cost of Renting While Saving

High rental costs in metropolitan areas make it difficult to build savings. Even buyers with strong incomes often find a significant portion of their earnings goes toward rent.

4. Families Want to Help the Next Generation

Many parents who benefited from earlier property cycles now have substantial equity in their homes and choose to assist their children earlier rather than waiting to pass on wealth later in life.

Because of these factors, family assistance has become an important part of Australia’s property landscape. When structured correctly, it can help overcome deposit shortfalls or borrowing capacity constraints, allowing buyers to enter the market sooner. However, the structure of that support matters. Different strategies solve different financial challenges and each comes with its own risks and considerations which are outlined below.

---

The Strategy Matrix

Strategy	Family Guarantee	The 99% / 1% Strategy	Gifted Deposit
Financial Hurdle Addressed	Deposit Shortfall	Income / Borrowing Capacity Shortfall	Deposit Shortfall
How It Works	A parent uses equity in their own property to secure the buyer's 20% deposit gap.	Adds a family member’s (typically parent's) income to the loan (income/affordability test) by taking a nominal 1% property ownership stake.	Parents provide a lump sum cash gift that adds directly to the buyer's deposit.
Key Benefits	Allows a deposit of less than 20% without incurring LMI fees.	May provide a major uplift in borrowing capacity for applicants.	Immediately increases purchasing power; some lenders may waive genuine savings requirements if the total deposit reduces the loan-to-value ratio below 90%.
Key Risks	Risks the parent's asset if the buyer defaults and ties up their equity, impacting future borrowing power.	Creates joint and several liability which may severely impact the parents' own future borrowing. There may also be potential tax implications on the 1% stake.	Requires a statutory declaration confirming it is a non-refundable gift; reduces the parents' own liquid cash.
Risk Mitigation & Exit Strategy	Minimize Exposure: Set up a "Limited Guarantee" so parents are only legally liable for the gap, not the entire loan. When to Remove: Once the loan balance drops below 80% of the property's current value. Strategies to Accelerate: Making extra repayments will help reduce the loan balance faster. Even without extra payments, future property value increases in the Sydney market can lower the LVR. Scheduling regular property valuations will allow the release the parents' title as soon as the 80% threshold is met.	Minimize Exposure: Ensure the buyer takes out comprehensive Income Protection and Life Insurance. If illness or injury stops them from working, the insurance covers the mortgage, keeping the burden off their parent. When to Remove: When the buyer's income increases (via promotions, a second job or if a partner joins the mortgage) to pass the bank's stress test on their own. Strategies to Accelerate: We conduct an annual borrowing capacity review for the buyer. As soon as their serviceability is strong enough, we refinance the loan solely into their name and legally transfer the parent's 1% share to them.	Minimize Exposure: Parents should only gift what they can comfortably afford without jeopardizing their own retirement timeline. To protect this cash from a child's potential future relationship breakdown, families should consult a solicitor about a formal Deed of Gift or a Binding Financial Agreement. When to Remove: N/A. The gift is a permanent transfer of funds and carries no ongoing liability for the parents. Strategies to Accelerate: Handle all estate planning and asset protection discussions legally before the funds are transferred.

How These Strategies Can Work in Reality

Strategy	Family Guarantee	The 99% / 1% Strategy	Gifted Deposit
Scenario	Sarah (26) wants a $700k apartment. She has a strong salary but only a 5% ($35k) deposit. She needs 20% ($140k) to avoid expensive Lenders Mortgage Insurance (LMI) fees.	Tom (24) has a great $150k deposit for an $800k townhouse, but his entry-level salary only qualifies him to borrow $450k of the $650k he needs.	Mia and Leo want a $900k home. They have a 10% ($90k) deposit but want to reach 20% to avoid LMI and unlock a lower interest rate.
Solution	Her parents act as guarantors, using $105k of equity in their own home as security to cover Sarah's 15% deposit gap.	Tom and his mother buy the property as "Tenants in Common", Tom owns 99%, and his mother owns 1%. The bank assesses their combined incomes.	Leo's parents provide an early inheritance, transferring a $90k lump sum directly into Mia and Leo's bank account.
Outcome	Sarah’s loan is approved for the full amount required. She buys the apartment today and avoids having to pay LMI fees.	The $650k loan is approved based on both incomes. Tom buys the townhouse and makes the monthly repayments himself.	Their total deposit is boosted to 20% ($180k), eliminating LMI altogether and securing a top-tier interest rate.
Considerations	If Sarah defaults, the bank can force the sale of her parents' home to recover the $105k. The parents' borrowing capacity may also be restricted by providing the guarantee.	Tom’s mother is fully liable for the entire $650k debt, which may restrict her ability to borrow for her own future needs.	Parents must sign a statutory declaration confirming the money is a non-refundable gift. The funds are permanently gone from their retirement savings.

Please note: The information provided in this article is general in nature and does not constitute credit advice. Lending policies, eligibility criteria and government schemes vary between lenders and may change over time. Individual financial circumstances should be assessed before implementing any strategy. Before making any financial decisions, consider seeking advice from a licensed mortgage broker, financial adviser, accountant or legal professional where appropriate.

---

Determining the right approach for you

The right strategy depends on your personal goals, financial position, borrowing capacity and eligibility for government support schemes.

At Orca Home Loans, our role is to help you understand your options and structure lending in a way that aligns with your long-term property plans.

With over 26 years of experience in finance and risk, we focus on ensuring clients make informed decisions with confidence.

Contact us to find out whether a strategy involving help from your family could work for you.

Contact Us

Contact Us

---

Frequently Asked Questions: Family Assistance

1. Is a Family Guarantor the same as a Joint Borrower? 

No. A Family Guarantor uses their property equity to help with the deposit. A Joint Borrower uses their income to help with the borrowing capacity. They solve two completely different financial shortfalls.

2. Do parents need to own their home outright to be a Guarantor?

Not necessarily. Parents can still have a mortgage on their own home, provided they have adequate equity (usually around 20–25% remaining after their own loan and the guarantee amount are calculated).

3. How long does a Family Guarantee stay in place?

It isn't permanent. The goal is to release the guarantee as soon as the child's property grows in value, or the loan is paid down enough that the debt is less than 80% of the property's value. We regularly review client loans to remove guarantees as early as possible.

4. Can parents be removed from a 99% / 1% loan later?

Yes. Once the child can support the debt alone, you can refinance the loan and legally transfer the parent’s 1% property title to the child. Initially purchasing the property with the parent having only a 1% stake helps minimize the stamp duty and any capital gains tax that will be triggered when performing this transfer.

5. What happens to the parents if the child misses a repayment on a Guarantor loan?

The parents are ultimately liable, but if set up correctly they will only be liable for the specific portion they guaranteed (e.g., the 20% gap), not the entire loan. However, a default will severely impact everyone's credit files.

6. Does a gifted deposit need to be declared to the bank?

Absolutely. Lenders trace all large deposits. You will need to provide a statutory declaration stating it is a gift.

7. Can a family member just loan the child the deposit privately?

They can, but the bank will factor those private repayments into the child's living expenses, which will drastically reduce the amount the bank is willing to lend them.