Mark Kevin, managing director of Mortgage Advice Bureau (MAB) Sydney, has about 20 applications for SMSF loans sitting on his desk. At a time when rates are rising and lenders are tightening their credit standards, the demand for SMSF loans is red hot.
“We were seeing strong volumes of residential mortgage settlements going through our office up until January. Borrowers are jittery now and the banks have really ramped up their serviceability checks,” Mr Kevin told SMSF Adviser.
“But we are writing an enormous amount of SMSF loans. That’s largely what we have been doing for the past two months.”
SMSF lending has been a niche Mr Kevin has focused on since he started in mortgage broking in late 2020.
Prior to that, he spent almost a decade at Suncorp in senior leadership positions across financial advice, superannuation, insurance and SMSFs.
“My first job in finance was working with The Strategist Group under SMSF veteran Grant Abbott,” Mr Kevin said. “Since then, I have always had a soft spot for the SMSF space,” he said.
“I knew that there wasn’t as much collaboration happening between accountants, financial advisers and brokers as there should be. Brokers are somewhat looked down on by other professionals and I wanted to change that by bringing a higher level of professionalism and service offer.”
Mr Kevin aggregates through AFG and has access to nine SMSF lenders, one of the widest SMSF lender panels available. He says that while the major banks exited this space around 2016–2018, in recent years there has been a surge in new SMSF credit products from non-bank lenders.
In a win for consumers, this increased competition has put downward pressure on fees and rates.
“We are pushing the lenders to innovate and want them to go digital with their processes. It is still very paper based and cumbersome,” he said.
In 2021 Mr Kevin authored a strategy paper around increasing professionalism, education and standards in the SMSF credit space. He lobbied the SMSFA and met with senior executives in a bid to bring a specialist broker accreditation to market, which would have recognised brokers who had the background, training and expertise to work in what is a more complex lending niche.
His efforts proved futile.
“Mortgage broking is moving towards professionalism and having higher standards around SMSF lending should be an important part of that. Financial advisers had their FOFA moment and brokers are going through it now,” he said.
“The barrier to entry in this space is too low. At the moment a broker can do a few weeks of training and get accredited with lenders to provide credit advice to someone about making a large and complex investment property purchase with their retirement funds. That’s a risk.”
Mr Kevin, who describes the current accreditation process as “incredibly light touch” says he sees a significant level of risk to aggregators and lenders. However, there is a reluctance among SMSF lenders to narrow their distribution channel.
In his strategy paper, Mr Kevin outlines the strategic intent of the “SMSF Specialist Accredited Broker.” This includes lifting the level of professionalism in the mortgage broking industry by recognising that certain areas of mortgage lending are more complex and require knowledge, skills, and qualifications beyond the industries current minimum education standards and accreditations.
He would like to see SMSF accredited brokers aligned with financial planning and accounting professionals and recognised for this with a specialist designation.
Critically, he believes more aggregators and lenders should be willing to reduce risk by increasing the competency of mortgage brokers advising on SMSF loans.
I stongly disagree and I think that this is just scare mongering. The overwhelming majority of LRBAs that i have come across are well run, fit for purpose and a valid strategy for superannuants and small business owners wishing to leverage their superannuation savings for a better and dignified retirement. And are operating within the SIS framework that governs them. The introduction of PCG 2016/5 tightened up leakage areas with regards to related party loans in these vehicles. Why the pile on?
I thoroughly support the comments of Bruno Gourdo. SMSF loans should never have been allowed.
This article makes reference to the SMSF Association being approached in a bid to bring a specialist SMSF accreditation program for mortgage brokers to market. When approached on this issue, we said the Association did not offer a specific mortgage broker accreditation as our SMSF Specialist Advisor (SSA®) accreditation program is open to all professions, including mortgage brokers. A number of mortgage brokers have completed this program to hold the SSA® designation and we certainly remain open to working with the mortgage broking associations to facilitate this on a wider basis. The SMSF Association is committed to raising competency standards in the SMSF sector and is happy to work with any profession that provides advice or services to SMSF trustees. The SSA® accreditation is evidence of a practitioner’s knowledge across a range of essential and specialist SMSF knowledge areas, including education about compliant SMSF trustee borrowing arrangements such as LRBAs. It is also evidence of their commitment to ongoing professional development and maintaining their SMSF knowledge. For clients contemplating or entering into an SMSF borrowing arrangement, it is important they have access to a licensed professional who has the competencies to provide specialist SMSF advice.
When these SMSF loans were given legislative approval in 2007, it was a surprise to most SMSF professionals. Until then, various half-clever warrant products floated around, and most of us considered them a compliance risk. One wonders about the vested interests and lobbying that went on behind the scenes that precipitated the change.
Borrowing to buy property gets more bang for your tax buck being done personally. Interest deductions at 47% are much better than at 15% in super. Plus you can continue to “gear” equity personally, where a SMSF can not. The tax concessions for listed shares with imputation credits is a much better fit with an SMSF.
The otherwise untouchable “equity” in superannuation, and a way to use it to buy property was something that financial advisers, banks, real estate agents and finance brokers all tried to exploit in the minds of investors.
Of all the SMSFs I have encountered, SMSFs with a property and a LRBA and not much else, would be the most unsophisticated and uneducated of SMSF trustees I have ever encountered. Most trustees have no idea of what they have, the restrictions, the cashflow risk, even that they are audited once a year and some that they even signed up a loan!
While many spruikers have been dealt with over the years, the fact that these loans continue is quite disturbing. There needs to be serious questions about who is still advising on these loans.
Most of the major banks stopped providing SMSF loans (LRBAs) after the Royal Commission which should have been a wake up call.
If the Government banned LRBAs tomorrow, most credible SMSF professionals would likely breath a sigh of relief. We didn’t want them in the first place and they are as big a slight on the reputation of the SMSF sector as were artwork and collectables.