Major bank flags ‘worrying’ SMSF borrowing trends
One major bank has justified its exit from lending to SMSFs for residential property by referring to “worrying” and “dramatic” growth in the area, while the head of CoreData has blamed troublesome SMSF borrowing activity on non-traditional lenders.
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.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.