Borrowers who are unable to scrape together a loan deposit are those who often turn to parents or other family members to act as guarantor.

Guarantors do not need to provide any funds upfront, but will have to sign a deed or contract of guarantee.

They may be required to list any assets they own as security and undergo a credit check similar to the borrower.

"The main risk of going guarantor for someone else's loan is that you may become liable for the debt if the borrower is no longer able to pay back the loan," says Aussie executive chairman John Symond. "If a guarantee is called upon, you may lose valuable assets in order to repay the loan, including your house if you listed your home as security.

"Also, if you are unable to satisfy a call on the guarantee, you may be sued by the lender for the money. Some guarantors have ended up bankrupt because they were unable to satisfy a call on the guarantee."

Symond says before becoming a guarantor, you should ask the borrower for their financial and loan information to verify whether they can actually repay the loan.

"You should also ask the lender reasons why they require a guarantor," he says.

Mortgage Choice's head of corporate affairs, Belinda Williamson, says first-time borrowers can avoid costly lender's mortgage insurance with a guarantor.

"If you're borrowing more than 80 per cent of the property value you have to pay LMI, but if parents can put up a guarantee for 20 per cent of the loan, they can avoid LMI," she says.