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.”
I wonder if the spruikers who are setting up these funds will be required to refund the establishment costs when the clients realise they cannot do what they were promised.
And yet the same banks will lend an individual $600k+ to buy a house, with a $20k deposit and $80k income on their tax return. Pretty sure they don’t have a “buffer” or a “Plan B”.
Pretty sure David that the loan in this circumstance isn’t limited to the assets of the SMSF either if they default.
If you’ve done any SMSF lending Geoff you would know that most (if not all) of the banks in this space require personal guarantees from the directors. So they are hardly ‘limited recourse’ but it seems the ATO is happy to overlook this requirement.
In the example quoted by DavidL, most people in that asset/income profile would have little other assets of substance that would be accessible by the banks. They may be able to bankrupt the individuals but that wont assist them in getting their money back.
No bank will lend a SMSF $580K on a $600K house. If you do not have close to $200K in the fund you would not get finance.
Totally agree about the “limited recourse” aspect, that is just a fiction whereby the banks limit their potential loses whilst charging you higher interest for the privilege.
I get what you’re saying Ralph re an SMSF loan. But a bank will lend an individual or couple $580K on a $600K house in their personal names and they wont require a buffer or PlanB, which is what David was saying. Geoff thinks that’s because the debt outside super is full recourse, and not the bogus ‘limited’ recourse loans offered by the banks. But in essence a couple who can only scrape together $20K for their deposit will have precious little between them as other assets between them. They may have cars but they are likely to have debt against them; they may have furniture & contents but they are worth diddly squat; they may have super but thats protected from creditors. So there is nothing for the bank to ‘claw back’. So the banks want 30% deposit, 10% liquid asset buffer before they would lend this couple a zac via their SMSF, but would fall all over each other to give them a loan in their own name. How is one loan riskier than the other?