Late last year, Thrive Investment Finance owner Samantha Bright told SMSF Adviser that the SMSF borrowing landscape had taken a hit since APRA announced curbs on investor lending.
Ms Bright believes lenders are still “dialling down” their activity in the space, with some of the smaller players, like credit unions, leaving the market altogether.
“The banks are saying they’re purely pulling back because of their investment lending targets. They don’t see this area as risky. They would say it if it was,” Ms Bright told SMSF Adviser.
In fact, Ms Bright said one of the non-major lenders recently cited SMSF lending as “one of the most profitable part of their books”.
Given the nature of the market at the moment, it’s a significant challenge for SMSFs with a balance of $200,000 and under to secure a loan.
“If you don’t have $200,000 in your fund, it’s a really tough exercise. For those larger funds, it’s absolutely still possible for them to buy property, it comes down to the strategy,” Ms Bright said.
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Given the limits on LVRs and liquidity restrictions, the downside risks to LRBAs are limited. Without the benefit of SMSF Loans crystal ball, who’s to say that a broader, diversified portfolio will outperform a property investment? Just because some people think $200K is the magic number doesnt mean that it is.
If a SMSF doesn’t have at least in the realms of $200K assets before acquiring a property there is a very big question mark over whether that Fund should be buying property / using a LRBA. The prevalence of consumers being convinced (mostly by mortgage brokers and/or property spruikers) to create a SMSF with minimal balances and then place almost 100% of the Fund into one single illiquid investment was very worrying to any right-minded SMSF practitioner and undeniably got on the radar of all three Regulators in some way (APRA, ASIC, ATO). Apart from an easy curb to some residential investment lending, one would suggest that the primary reason Lenders (especially large ADI) have “dialled down” on LRBA is to ensure that they distance themselves from the sort of scandals we’re seeing come through now and the inevitable class actions of the future – and, of course, in order to ‘prove’ to the Regulators that they are good corporate citizens and avoid any draconian measures being imposed.