SMSF lending showing resilience despite rate rises: lender
Rising interest rates have not dampened the appetite for SMSF loans, says a major lender in the sector.
George Obeid, chief third party officer for Judo Bank, said there is a lot of resilience in the market and, after a softening during COVID-19, the market is again heating up as more SMEs look towards SMSFs as their retirement vehicle and to commercial property as an investment vehicle.
“Our core market is business lending and the craft of banking for SME customers,” he said.
“Put simply, we look at hiring the right bankers to apply common sense to lenders.
“We acknowledge that SMSF lending is part of wealth preservation and a wealth creation vehicle especially for those with a corporate structure.
“However, this is a highly controversial segment of the lending market given the legal/regulatory complexity and obligations on all parties including trustees, advisors and financiers and the bank appetite differs across the market, but the majors are typically very conservative.
“In relation to Judo, we focus on our SME business owner segment and offer lending largely to assist with the purchase of commercial properties owned in sponsors’ SMSFs.”
“Our focus is on owner-occupied premises – trading premises of the SME business – where the property is owned within an SMSF for structural reasons on advice of professional advisers.
Although SMSF lending is a new branch to Judo Bank’s offering, Mr Obeid said the recognition in the SME sector that property ownership under an SMSF umbrella can help secure retirement savings has meant its customer base is growing.
“Despite a slight downturn, there has been remarkable resilience in the property market but with significant interest rate rises which is an unavoidable issue,” he said.
“It will impact SME customers, but in saying that, we believe there is likely to be a resurgence within the SMSF loan space in Australia.
“It will hold up to some extent as investors find more affordable ways to get onto the property ladder.”
Mr Obeid said SMSF loans are another way for businesses to build a property portfolio and they use SMSF as a vehicle to do that.
“From what we hear from our economists, if this the top end of rate rises, they are certain there will be further resurgence in SMEs looking to purchase commercial property,” he said.
“It’s a waiting game, and we are conscious that the rate rises will affect our SME customers, but I believe Australia has been more resilient than other countries.
“Investments continue to flow into Australia and although we still need to be mindful of the shadow side of the economy, we must try to manage it as we go.
“Our own data shows there has been a steady increase in SMSF lending, and following the uncertainty of the pandemic and the future of property prices, we can see that resilience coming back.”
