Q&A 6 August 2018
August 6, 2018
New banking code a win for customers
August 6, 2018

Reports of the death of SMSF lending greatly exaggerated

When one of the big banks pulled out of the SMSF loan market last month and another lender tightened up its product offering, there was concern that regulatory pressure was about the kill off the market.

While the market for limited recourse borrowing arrangements is small, there are still a number of lenders offering competitive products.

When comparison site Canstar last rated SMSF loans, in October last year, it awarded five stars to Commonwealth Bank, Hume Bank, IMB and Westpac products.

It reviewed 69 products offered by 10 provides. Other lenders included bcu, Yellow Brick Road, Mortgage House and three Westpac subsidiaries.

The best rates on offer at the time were for Hume Bank and Yellow Brick Road.

Last month, Westpac told mortgage brokers and financial planners that it would stop selling loans to self-managed superannuation fund trustees.

The decision also covers its subsidiaries, Bank of Melbourne, St George Bank and BankSA.

The bank will continue to service customers with existing loans.

And last week AMP Bank made changes to its SMSF loan product, withdrawing its interest-only option. It also tightened up on the security that it would accept, saying loans would not be available for properties zones “rural residential”.

In June, ASIC warned about the growing presence of what it called “property one-stop shops” advising SMSF trustees on geared property investments. The regulator’s concern is that this strategy posed a risk because of the lack of diversification in the fund.

ASIC’s view is that some people had moved into an SMSF as a way of getting into the property market and were using their fund solely for that purpose, without a broader investment strategy.

According to the most recent ATO data, the value of assets held by SMSFs under limited recourse borrowing arrangements was $25.4 billion – 4 per cent of SMSF assets.

There is no doubt that the market for limited recourse borrowing arrangements is getting tighter, as are most loan markets at the moment. Lenders report that they are reducing maximum loan-to-valuation ratios for SMSF trustees.

And last month new rules took effect, amending the total superannuation balance test, so that in some circumstances it takes into account the outstanding balance of an LRBA entered into by an SMSF trustee.

As a result, a member’s total superannuation balance may be increased by the share of the outstanding balance of an LRBA commenced after July 1. The increase only applies to members who have satisfied a condition of release with nil cashing restriction, or those whose interests are supported by assets that are subject to an LRBA between the super fund and its associate