Younger SMSF trustees locked out of borrowing
Despite the high level of interest in SMSF borrowing among trustees in their 30s, many are unable to access loans as a result of restrictive minimum balance requirements imposed by lenders, says an SMSF specialist broker.
Thrive Investment Finance owner Samantha Bright says she has recently witnessed an uptick in the number of loan inquiries from younger SMSF trustees.
“The only thing holding them back is that they haven’t been in the workforce long enough to accumulate those balances of $150,000 or $200,000,” Ms Bright told SMSF Adviser.
“Your choice of lenders is definitely restricted under the $200,000 and if your balance is under $150,000, forget about it.”
Ms Bright said the decision to limit loans in this way by lenders stems from the fact that it is not prudent for trustees to spend every cent they have on an underlying property.
“You need to make sure you’ve got enough buffer and enough of a plan B. Every property investment has risk. Just because it’s a house doesn’t mean there’s no risk in it,” she said.
However, Peter Townsend from Townsends Business & Corporate Lawyers, said restricting loans in this way makes it harder for younger people to become financially secure.
“If they had a little money in their fund from their own savings and maybe a loan or contribution from mum and dad, they’d have the deposit and be able to buy a modest apartment in a non-Sydney, non-Melbourne area and let it ride for 30 years,” Mr Townsend said.
“But no. They can’t arrange a minimum $200,000 contribution to their fund so they’re excluded from the opportunity.”
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.