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Brendan Gilmour

SMSF Lending Landscape: Navigating Through Changes and Opportunities

Written by Brendan Gilmour

In the realm of specialised lending, Self-Managed Super Fund (SMSF) loans represent a unique segment where our expertise shines brightly. This type of lending involves a Limited Recourse Borrowing Arrangement (LRBA), specifically tailored for purchasing residential or commercial properties within an SMSF. The mechanism allows for a loan to be taken out in the name of the Bare Trust, ensuring that the SMSF can acquire a property, with the stipulation that only one property can be held under each LRBA.

HUDSON HAVE A BROKER THAT SPECIALISES IN THIS SPACE AND CAN FIND INNOVATIVE WAYS TO HELP YOU SECURE YOUR PROPERTY, OR REFINANCE AND KEEP YOUR RATES COMPETITIVE.

Contact Hudson finance: helenc@hudsonfp.com.au or call 1800 804 296

A SMSF CAN HAVE UP TO SIX INDIVIDUAL MEMBERS ALLOWING MEMBERS TO GROW THEIR RETIREMENT SAVINGS WITH POOLED LEVERAGE.

The Shift in the Post-Royal Commission Era

The financial landscape for SMSF lending has undergone significant transformation following the findings of the 2019 Finance Royal Commission, led by Kenneth Hayne. The heightened scrutiny and regulatory pressures emanating from the commission’s recommendations have led to a notable withdrawal by many of the major banking institutions from the SMSF loan market. Prominent banks such as the Westpac group (inclusive of its subsidiaries St George, Bank SA, and Bank Melbourne), alongside ANZ, NAB, CBA, and Macquarie, have retreated from offering SMSF loans—a domain where they once actively participated. This shift has left many borrowers grappling with ‘grandfathered’ loans, experiencing surges in interest rates to the daunting 9-10% range.

Exploring New Horizons with Non-Bank Lenders

Despite the retreat of major banks, the SMSF lending space is far from barren. A new wave of non-bank lenders has risen to the occasion, presenting a plethora of options for those in the mid to low 7% interest rate range. For individuals burdened by high-interest rates, transitioning to these smaller lenders could translate into substantial savings—potentially amounting to tens or even hundreds of thousands of dollars over the life of the loan.

Easing Into Investment with Revised Policies

For aspiring investors eyeing the SMSF route for purchasing investment properties, the landscape is increasingly favourable. The emergence of new-generation SMSF lenders has brought with it a suite of policies designed to simplify entry into this investment pathway. Noteworthy among these policies are:

  • Absence of Net Asset or Liquidity Tests: Borrowers are no longer required to demonstrate the retention of a certain percentage of the loan amount as cash or other assets in the super fund. The only exception pertains to maintaining liquidity equivalent to three months’ worth of repayments.
  • Lending up to 80% LVR: Competitive rates are still achievable, with rates dipping into the low 7’s for loans under a 70% Loan to Value Ratio (LVR).
  • Lending up to 90% is even possible, however an additional ‘risk fee’ is applied by the lender which is very comparable to Lenders Mortage Insurance (LMI) in the residential lending sphere. It can be an ‘opportunity cost’ worth considering…
  • Availability of Offset Accounts: Traditionally avoided by lenders due to regulatory concerns under the Superannuation Industry Supervision (SIS) Act, offset accounts have now become accessible. With the right financial guidance, these accounts can offer significant interest savings on SMSF loans. It is crucial to note, however, that funds in the offset account must be used in compliance with the structures applicable to other super fund monies, specifically for the maintenance and repair of the property held in the bare trust, not for improvements.

The evolving SMSF lending space presents both challenges and opportunities. While the post-Royal Commission era has seen a retreat by traditional banking powerhouses, it has also paved the way for innovative lending solutions by non-bank entities. For individuals navigating this landscape, the potential for significant savings and simplified entry into property investment under an SMSF is considerable. With the right advice and strategic approach, leveraging the benefits of the current SMSF lending environment can lead to fruitful investment outcomes.

Contact Helen: helenc@hudsonfp.com.au

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