Further lenders tipped to drop SMSF loans
While it’s predicted that one or two of the larger SMSF lenders may follow Westpac and exit SMSF lending, secondary lenders will likely fill the market gap, says an SMSF specialist mortgage broker.
Westpac Group recently made the surprise announcement that it would no longer be offering SMSF property loans from 31 July. Other brands under the Westpac Group, including St.George, Bank of Melbourne and Bank SA, also followed suit.
Standard Integrated Lending director Tony Caine said given that it’s a more laborious process to set up SMSFs, and loan balances are smaller and paid off more quickly, SMSF loans don’t always represent as much value to the major banks compared with standard types of mortgages.
“Banks make more money if the cost to write the loan is reduced and the loan is on their books for a longer period of time. That's why I think you're going to continue to see banks like Westpac pulling out of the space,” said Mr Caine.
Mr Caine predicts that one or two of the other banks may also pull out of the SMSF lending space. However, he also expects that some of the secondary lenders will look to capitalise on some of the loans that the major banks don’t want to write.
“If you look at lenders like Liberty and LaTrobe, they're still more than happy to provide SMSF loans and they're going to be able to pick up what the major banks are leaving on the table,” said Mr Caine.
For the lenders still operating in the SMSF loans space, including Macquarie, AMP and CBA, You’re Welcome Finance director Chris Straw said “it’s business as usual” for now, but notes that a lot of lenders are tightening their policies.
“They have strict policies in place to ensure the SMSF has plenty of money in liquid assets and it needs to be a property that’s been completed,” he explained.
Mr Straw previously told SMSF Adviser that some banks won’t lend to SMSFs planning to purchase a property that’s less than six months old.
Up until recently, AMP would not accept properties less than six months old as an acceptable security for an SMSF loan. It updated its policy on 18 June to once again allow loans to be offered for newer properties.
Macquarie has also tightened up on its loans recently, announcing a 0.10 per cent increase in variable rates across its investment and SMSF loans.
Mr Caine said if further banks do exit the space, there could be further increases with costs for SMSF borrowers.
“I think to get an SMSF loan you'll need to tick a lot more boxes then you have in the past and the rates will be more expensive,” he said.
He also expects that the rate of approvals will continue to fall from what it was previously as banks look to ensure that loans are good quality.
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.