In a joint statement, industry representatives said the measure is “rushed, blunt, and inconsistent” with the government’s stated objectives to support housing affordability and promote retirement savings.
It continued that the ban was agreed without consultation and included a transition period of just 45 days after Royal Assent, leaving borrowers, lenders, brokers and advisers scrambling to manage the implications.
The latest ATO data shows SMSFs currently hold around $75 billion in LRBA-supported assets, backed by $28.9 billion in debt, which equates to average gearing of just 39 per cent, much lower than residential property lending outside superannuation.
Mario Rehayem, CEO of Pepper Money, said this change by the Government is not based on current evidence.
“It responds to yesterday’s market, not today’s. The system has evolved, the guardrails are stronger, and the rationale for a blanket ban does not stack up,” Rehayem said.
“This change does not target residential property speculation and will not move the dial on housing affordability.”
James Boyle, CEO of Liberty Financial, said the ban will shut down a tightly regulated and important financial service with a long record of safe operation.
“While it’s a small part of the broader lending market, for working Australians with an SMSF it has a really important role in their retirement savings strategy,” Boyle said.
“Preventing the use of modest borrowing for residential property will disadvantage many Australians and limit their ability to maintain a diversified portfolio, particularly in times of global and market uncertainty.”
The statement said those most affected will not be wealthy speculators or professional investors, but working Australians using SMSFs as part of a disciplined, long-term retirement strategy.
Pete Lirantzis, CEO of Resimac, said the premise that SMSF residential property borrowers are wealthy is far from the truth.
“Our portfolio reflects a broad range of Australians, many using relatively modest SMSF balances as a pathway to a form of home ownership,” he said.
“For many SMSF trustees, this is not about speculation, it is about using their superannuation as a practical pathway to own property for retirement and build long-term financial security.”
Marie Mortimer, CEO of Firstmac, said removing that option risks locking Australians out of the property market and leaving them facing a lifetime of renting in retirement.
“This also runs counter to the Government’s stated objectives and, in practice, property within SMSFs will now only be accessible to those wealthy enough to purchase outright, rather than ordinary Australians in their thirties, forties and fifties planning for retirement,” she said.
Mark Jones, CEO of Bluestone, said SMSFs are not just for wealthy or older Australians.
“Many younger Australians are actively engaging with their retirement savings. This policy risks penalising those Australians taking responsibility for their financial future and removes a viable pathway for building retirement security,” he said.
Importance of supporting superannuation diversification and choice
The industry representatives also warned the ban may create asset and risk management challenges for SMSF trustees by making it harder to maintain appropriate diversification.
Jonathan Street, CEO of Thinktank, said diversification is a core principle of prudent retirement planning, yet this measure makes it more difficult for SMSF trustees to maintain a balanced mix of assets across shares, fixed income, cash and property as other super funds do and will continue to be able to do.
“For many SMSF trustees, residential property is not speculative, it is central to how they manage risk and plan for the long-term,” he said.
The statement said the practical effect of the ban would be to significantly limit the role of residential property in future SMSF strategies, even while other superannuation vehicles retain flexibility to invest in property.
An outright ban will effectively remove residential property from SMSFs for many Australians, regardless of whether it is appropriate for their circumstances. SMSFs already operate within strong guardrails, including trustee duties, balance constraints and structural safeguards that distinguish them from speculative investment.
Andrew Chepul, CEO of ColCap Financial Group, said residential property is a legitimate part of a diversified retirement portfolio.
“Rather than applying targeted, calibrated settings, the Government has chosen a blanket approach. Removing residential SMSF borrowing does not eliminate demand for property investment within superannuation,” he said.
The impact of this policy is also expected to fall disproportionately on the non-bank lending sector, which has supported competition following the major banks’ withdrawal from SMSF lending over the past decade.
Calvin Cordle, CEO of RedZed, said this policy change is another setback for the segment of the market that drives competition, innovation and choice.
“The major banks exited this space years ago. Non-bank lenders have since developed expertise and served borrowers responsibly,” he said
The 45-day transition period was described as unworkable for borrowers and businesses with transactions already underway.
“There are pipeline deals, signed contracts, approved loans and scheduled settlements now facing a 45-day deadline. These are not speculative – they involve real people who have already incurred costs in reliance on a well-established framework. The Government must urgently clarify how these borrowers will be treated,” Cordle said.
The industry said that if the Government proceeds, a more balanced alternative would be to allow limited recourse borrowing for one residential property within an SMSF.
“If the Government is determined to act, a more proportionate approach would be to allow borrowing for a single residential property within an SMSF. This would preserve diversification, maintain appropriate guardrails, support trustee choice, and better align with the Government’s stated objectives,” Rehayem said.
Further, the sector is calling on the Government to urgently clarify the treatment of pipeline transactions, confirm that refinancing of existing residential LRBAs remains permitted, and provide clear operational guidance to borrowers, lenders, brokers and advisers.
“This policy was introduced without consultation, detailed modelling or evidence of systemic risk. It should be reconsidered before it materially reduces Australians’ capacity to build sustainable retirement savings,” Rehayem said.
Borrowing not the issue: CPA
Meanwhile, Certified Practicing Accountants Australia said the proposed SMSF changes will highlight a ripple effect of the Government’s tax reform agenda and risk overlooking the real driver of consumer harm.
Richard Webb, CPA Australia superannuation lead, said the shift raises broader concerns about the direction and unintended consequences of the current reform package.
“While targeting SMSF borrowing may appear to address risks at the surface, it does not tackle where much of the real harm originates – upstream in unregulated lead generation and high-pressure sales practices,” he said.
CPA Australia said that, as outlined in its recent submission to Treasury (as part of the Joint Associations Working Group with CAANZ and IPA), issues with the anti-hawking regime – including the personal advice exemption – should be considered in the broader context of lead generation activity.
“Consumer harm often begins well before formal financial advice is provided,” Webb said.
“Unregulated lead generators can influence or direct consumers toward particular products or strategies without being subject to the same licensing, conduct and accountability obligations as financial advisers.
“Simply tightening or removing the personal advice exemption risks treating the symptoms rather than addressing the root cause.”
CPA Australia is calling for stronger oversight of lead generation activity, including bringing those who influence consumer decisions within the financial services licensing framework.
“If policymakers want to reduce harm, the focus should be on ensuring anyone who meaningfully shapes financial decisions is appropriately regulated and accountable,” Webb said.
He added the proposed SMSF borrowing changes may also have unintended consequences for investment choice and retirement planning.
“The initial policy direction indicated superannuation would be largely insulated from these tax changes, but what we are now seeing is a shift that could effectively limit investment choice for SMSF trustees,” he said.
“In practice, this would narrow access to residential property investment within super to Australians with significantly larger balances, potentially creating equity concerns across the system.”
CPA Australia said the full implications of the reforms, including interactions with broader tax changes and housing policy objectives, should be carefully assessed before being legislated.
“These are significant structural changes,” Webb said.
“They should be considered on their merits, with a clear focus on consumer protection, system integrity and fairness – not traded off in the context of broader budget negotiations.”
Lots of complaints from 2nd and 3rd tier lenders. None by the majors though. Because the majors have progressively exited SMSF lending due to the reputational risks. LRBAs require personal guarantees due to the inherent risk to the lender. When the property bubble eventually bursts and lenders start calling on personal guarantees, all those “everyday Australians taking responsibilty for their retirement” will reinvent themselves as “victims exploited by predatory lenders”. We all know whose side the media and regulators will take when that happens.
Maybe these lenders should consider the government has done them a favour by shutting down one of the biggest threats to their longer term survival.
Rubbish. Max LVR in LRBA lending is 80% with max term 15 years under safety net laws introduced several years ago: average gearing currently below 40%. I’d worry about the 5% deposit First Home Buyers defaulting more.
Whilst the Greens hold the Senate balance, nothing will change here but the industry needs to keep the issue alive. Let’s NOT let the airwave commentators take a trick on their prediction that, as the discussion on changes to NDIS grind on – that bill has been afforded a sensible review time period – the valid objections to changes to tax and LRBAs will dissipate. The industry should try and have the inappropriate changes to CGT and now, LRBAs, as a platform issue in the next election campaign. There are so many sensible tweaks that could occur and still deliver a policy objective. As it stands, the law that has just passed is delivering Albanese’s ideological objectives with little regard to the need for good policy design. He is no better than Trump in pushing an agenda without really understanding the issue. He is being so disingenuous about the dissent to the changes by, the usual tactic, criticising the messenger not the message.
Why oh why didn’t they partially agree to the Greens demands and, instead of banning residential property from LRBA structures, limit the LRBA to a positive or neutral gearing set-up?
The ability to offset property losses against other income in a (max) 15% tax environment is not the main game here, (in my view) it has always about 2 things;
1. Using leverage to enhance investable assets (on the basis that if risk assessment has been diligent, the end state will be enhanced value); and
2. Managing the impact of capital gains on the increased value of the asset at sale.
The ability to limit already low super tax in the accumulation phase shouldn’t be the focus and has now been completely taken off the table as an option.
The industry needs clear language in its advocacy for tweaks to the new law(s), politicians have difficulty understanding the issues and, their attention span is very narrow.