Thrive Investment Finance owner Samantha Bright says the majority of SMSF lenders have now reduced loan-to-value ratios (LVRs) for SMSF loans to 70 per cent, down from 80 per cent.
“Most lenders are back at 70 per cent and the ones that will lend more than the 70 per cent are more conservative with their restrictions because they’ve got to manage the risk of going above that 70 per cent so there are other policies that have to be met,” Ms Bright explained.
At the same time, lenders are also requesting that greater amounts of liquid cash be left in the SMSF after the transaction has been paid for.
“It’s almost like a double whammy because they only allow people to borrow up to 70 per cent so they’re putting a 30 per cent deposit in instead of 20 per cent, so of course their cash reserves are lower, so SMSF investors are being penalised in both areas,” Ms Bright said.
“[Lenders] are lending them less money, but expecting them to have more funds.”
This is particularly difficult for SMSFs that have already purchased one property in their SMSF and are looking to borrow to acquire a second.
“I’m seeing it now, with people buying their second property, it’s damn near impossible, because of those liquidity requirements,” Ms Bright said.
Serviceability is also becoming another issue, she said, especially with some of the recent rate increases.
“We’ve had a real increase in rates with SMSF loans as a flow-on effect from changes with investor loans which [impacts] the return on investment for the fund,” Ms Bright said.
In addition to this, banks also have floor rates that investors have to be able to service the loan on, so the higher the interest rate, the higher the serviceability rate becomes for the loan.
“It becomes really tough if you’re just looking at your two standard people in an SMSF, average incomes at 9.5 per cent, plus the rent, it gets harder to service,” Ms Bright warned.
The proposed changes to LRBAs in relation to the transfer balance cap could also impact SMSF investors where they planned to pay off more of the loan as their personal expenses reduce at different life stages.
“That absolutely affects the whole strategy for the property and affects the whole reason to do it.”