Speaking at the release of the fifth Intimate with Self-Managed Superannuation report, a CoreData report prepared for nabtrade and the SMSF Association, CoreData founder Andrew Inwood said while the large banks generally put restrictions on loan to value ratios (LVRs) and other lending criteria, this tends not to be the case with non-traditional funders.
“NAB no longer does residential loans [for SMSFs] and CBA processes SMSF loans through its business bank so it’s got to go through its banking business criteria,” said Mr Inwood.
“Most banks insist on [an LVR of no greater than 60 per cent], so you can’t turn up with 10 per cent, you’ve got to have greater than 40 per cent [of the value of the asset]. It’s the non-traditional funders that are doing those sorts of loans.”
MLC head of technical services Gemma Dale said NAB made the decision to cease residential lending for properties within SMSFs earlier in the year, following “dramatic growth in that area”.
“We didn’t have any specific areas of risk or any pockets of activity that we were particularly nervous about but we simply thought in a very large organisation there had been dramatic growth in this area – very, very dramatic growth and very large amounts of interest as well,” said Ms Dale.
Ms Dale said it was also difficult when customers did not understand why they did not meet the requirements for an SMSF loan.
“It was quite challenging to say you need to follow all of these rules and all of these steps and if you don’t, we simply cannot do it for you. They were a little shocked at that,” she said.
“We’re comfortable with the decision. I don’t think anyone is happy seeing dramatic growth in lending in SMSFs; I think we find that a little worrying.”
SMSF Association chief executive Andrea Slattery also discussed some of the findings of the report, including the fact that ‘coach-seeker’ and ‘outsourcer’ trustees represent the biggest growth opportunities for financial advisers.
The report also found that the common barriers to SMSF set-up were lack of knowledge of SMSFs among non-trustees, at 38 per cent; balance size not justifying an SMSF, at 32.3 per cent; and too much hassle, at 30.6 per cent.
“Notwithstanding these barriers, however, close to one in five (18.6 per cent) of non-trustees with a lack of knowledge or other constraints around setting up an SMSF would consider establishing one if an accountant or financial planner could assist them in better understanding SMSFs,” Ms Slattery said.
How odd, a business that wants to get out of a specific area of business because that area of business is growing to fast. Does this seem very odd to anyone else?
Let’s understand the drivers to growth for this industry and lending. We are all told to fund our own retirement and then limited as to what investments we can acquire. A new allowance is made to allow investment into a solid investment vehilce and paople decide to take action on this opportunity. Sounds logical to me, why the fear? Or is this action impacting profits in other areas of the business that they do not want to disclose.
Also LVR at 60% is based on commercial not resi and NAB mainly went to 70% in resi space while other lenders went to 80%.
Andrew….have you ever gone through the bank lending guidelines on smsf?
At no time did they ever do 90% loans and some of the non bank funders were the first to reduce the lvr to 70% which most of the major banks have followed.
So to us the old 10% deposit example and blame the smaller lenders is not only incorrect but misleading.
More scare mongering from vested interest parties….I wonder…