SMSF's will no longer be able to borrow to invest in property?

Article to that effect
Westpac set to rock property market by pulling out of SMSF lending

Tougher scrutiny on other borrowers
Westpac's move could also herald a change in strategy away from risky investors to low-risk premium investor and owner-occupier fixed-rate borrowers by offering discounts of up to 50 basis points and free international trips.

 

Can see a few reasons why it would be considered more risky, perhaps the biggest being that there is no recourse in case of a default.

This is a good article that popped up in my feed that talks all about it: http://www.switzer.com.au/the-experts/andrew-main/why-did-westpac-pull-out-of-smsf-lending-for-properties

 

Personal guarantees

 

I remember reading a comment by @Paul@PFI about how funding for SMSF loans is risk rated differently from resi lending for example. I forget what its called. Having said that, surely the 6+% interest rates make up for it.

 

Don't read to much into it. NAB exited resi loans a couple of years back, MAcquarie is pricing itself out of the market.....they just balance their risk / book - who cares. There are many other options for investors. Out of the Big Banks CBA is getting the majority of the business for those funds over $200k if under $200k La Trobe is still there and I can tell you their books are crazy, don't even know the names of the analysts these days as they had to hire heaps of people top keep up with demand.

Fact of the matter is that if you are dealing with SMSFs, you are in the firing line, ASIC assumes you are stupid, and if you receive advice the Risk is on the Adviser - the advice must be in your best interests. Remember two years ago, people were smart enough to make their own decisions however now Accountants must be licensed, and if an accountant establishes your SMSF they must be licensed under an AFSL, who says you will get good advice? After all the recent ASIC report on SMSF stated that something like 90% of SMSF advice was crap in not in the clients best interests. From memory this was based on a sample of 250 clients. So is paying for advice good? based on those stats ....maybe not.

Maybe St George is thinking about that interview at the RC.

Don't worry, the biggest threat to SMSF loans is a change of government, not St George existing the market.

Even if the lenders all pull the pin, there are options / products to get the deal done.

What I will say is that if you are buying off the plan, greater "cushion" must be in place, CBA will still do 70% OTP however other lenders will limit their LVR particularly with apartments in inner city. I try to warn everyone about this - have a contingency plan in place.....i.e. equity/ cash outside the SMSF

Personally, i'd be interested in the amount of our fellow Propertychat folk who use "related party loans" and give a middle finger to the banks. I do. It's a great strategy that has been eluded to above - if you have capacity but seek licensed advice in doing so or read PCG2016/5 carefully.

In summary, who cares about St George? I don't.

Cheers and happy investing

Ivan

 

CBA has joined the exodus and will be removing their SuperGear product (SMSF loans) from the 12th October.

If you have any SMSF applications then get them in and also consider fixing as lenders have massive leverage to jack up SMSF loans due to the shrinking pool of SMSF lenders and costs in refinancing.

 

St George leaving the market is a big blow to the SMSF lending space as they are a) a major lender with excellent overall policies b) have genuine niches c) decent servicing calcs and d) genuine competition.

When you pull out a major lender you pull out competition. We need to more lenders in this space not less. Yes there are lenders still that can fill gaps but we (putting my customer hat on) don't want to choose from one lender. We want to have the option of choosing from multiple lenders.

 

I believe the banks one by one have conducted a risk assessment and concluded the risks and costs dont result in profit. More could yet follow. The limited recourse nature has an effect on capital adequacy and its not great. I saw how this process worked back a while when I worked in financial markets / Treasury for a major bank. Its changed since then but its also got worse. And its not easily fixed with higher margins as they are now experiencing. The funbding that supports these loans is also risk weighted and a higher cost. Back in 2007 when the laws came in this was predicted by some.

Banks only sell products which produce profit and profit includes risk of loss. Even jacking up margins wont actually fix this issue due to an amplification issue if either rates rise OR values decline - More capital must be set aside yet there is no further inflow from the fund so it kills the banks balance sheet v's other loans. If both rate rises and prices decline (inevitable ?) its a catastrophe for the lender.

And when the laws changed between 2007 and 2011 many chased these loans. Many early adopters were safer and probably now have good equity. But I question if many of the more recent loans are actually quite high financial risk. Less oversight, chasing higher leverage and a market that may not offer prompt gains in values like we say in the period before 2017.

I cant say a lot but for every caller who asks about SMSF loans we would decline to give advice for 80%+. They are extreme risk. People who have no other borrowing capacity other than raiding the super jar. I question if they proceed and the banks have looked at this issue. After all it is limited recourse. And some of the borrowers are very highly geared. So the recourse could be of no value.

And I know lenders and ASIC have concerns about brokers promoting SMSF loans ahead of product demand by buyers.

I also wish more lenders had loan products for SMSFs but this could be the trigger for some serious concerns for some SMSFs who have loans. A number of matters could see refinance refused and a sale may be required.

For now the laws that permit borrowing remain. But perhaps the days are closing...Or will the finance market kill the loans instead ??

There are also some alternative strategies for those with property equity elsewhere which are more flexible. These options have been available for 20+ years and can still be explored. They tend to suit those who :
- Have good equity and credit personally
- Have solid incomes; and
- Reasonable accumulated super balances

 

As @Shahin_Afarin referred to earlier today - CBA are now OUT

CBA withdraws from SMSF lending - Mortgage Business

 

Yet another reason why SMSF's wishing to invest in RESI should only be considering properties with strong yields, setting the loans up as P&I from Day 1 and paying the properties off in an accelerated fashion.

 

CBA announced on Friday that they were withdrawing and have cut down or stalled apps since August where this decision was considered by the board. Its obvious that it is not streamlining a product more reacting to the magnitude of breaches of Superannuation Law that were identified in the Royal Commission. Each trustee of a SMSF is up for massive penalties for any breach of SIS yet these clowns and their kronie bank mates breach super law hundreds of times and get away with it.

I will say that those deals slotted for CBA have just been moved across to Macquarie who continue to offer the product as does La Trobe who has been killing the market for some time.

In summary, there will still be lenders offering the SMSF loan, if you are buying off the plan with a settlement post 2019, I suggest you be ready for a "related party loan" as with Shorten coming in say May 2019, it will take him 6 months to ban SMSF borrowing.

In the meantime business as usual, just look at Macquarie, LA Trobe and Liberty to start with - rates around 6%.

Cheers Ivan

 

Or Australian Secure Capital with their Origin white label product at 5.09%.

Cheers


Richard

 

Advertising........

 

Mortgage house and YBR also do white label products I believe.

 

CBA axes SMSF home and commercial property loans amid growing market and regulatory fears

 

And AMP have joined the exodus.

From the 20th October they will discontinue selling their SMSF product.

Things are looking pretty dreadful in the SMSF lending market.

 

LaTrobe must be having a field day. They even reduced their advertised interest rate from 6.69 to 5.99 - probably a market grab before LRBA is potentially gone for good.

 

For that theory to work you need investors buying and most investors are watching from the sidelines.

Lets see if these lenders are still around when the game picks back up.

 

Market grab as once they have you and there are no alternatives.... what could happen to rates then? The phrase "cost of funding has gone up" might be used a bit.