Westpac whacks SMSF property investors with tough borrowing changes

Westpac whacks SMSF property investors with tougher terms and conditions for borrowing

Westpac Group is set to whack self-managed superannuation fund property investors with tougher rates, policies and processes in the lead up to this weekend's changes to caps on lucrative tax concessions being imposed by the federal government.

The changes will also coincide with the Westpac and subsidiaries, Bank of Melbourne, BankSA, St George, slugging interest-only property buyers with 34 basis point rate increases.

Westpac's changes to self-managed superannuation funds will mean the maximum interest-only repayment term will be halved from 10 years to five.

A minimum SMSF balance of $200,000 will also need to be demonstrated upon application.

SMSF trustees will also have to complete a new statutory declaration stating that customers have sought independent financial and legal advice when applying for a SMSF loan.

Borrowing – or gearing – for property within superannuation funds is highly controversial because of concerns that scheme members are concentrating too much of their superannuation in a single asset, which could be financially disastrous if there is a property crash in the lead up to their retirement.


There is also continuing controversy about investors being flogged unsuitable investment properties by property spruikers offering cash, rental and furniture incentives.

A 2014 Financial Systems inquiry recommended that SMSF borrowing should cease.

According to the Australian Taxation Office, real property within SMSFs grew from $15 billion in 2003-04 to more than $100 billion by the end of last year.

Westpac changes, which are expected to be followed by other major lenders, will be imposed as the federal government introduces changes to concessional and non-concessional caps are introduced this Saturday.

That means the use of limited recourse borrowing arrangements will be included in a member's total superannuation and $1.6 million transfer balance cap calculations.

Lenders face higher risk with a limited recourse loan because it is debt in which the creditor has limited claims on in the event of default.

 

That seems reasonable considering the standard I/O term for a private investor is usually 5 years.

I agree and I am surprised that Labor didn't campaign on this in the last election.

This is also a concern. I am not sure you remember this post from 2015 but this is the risk when people who are inexperienced in investing try to invest their own funds.

"West Australian property is not without its risks. We bought a property off the plan in Mandurah on the canals in the Ocean Marina South, with a business plan to rent it for $1,200 per week. Sub penthouse, on the canals, 320 degree views, 2 balconies, 3 bedrooms, quality appliances, all on one level, almost all of the 4th floor, private lift entrance. We are getting $400 per week, and trying to sell, looks like we will have to drop the price to $600,000. It cost us over $1.3 million in 2006, but it took 4 years to build. The developer avoided the 3 year grandfather clause by registering the strata plan before it was finished, and it was not the strata plan that we signed off on. There are many as bad as this, and with an annual loss of nearly $50,0000 per year, we are not going to see 30% of our money back. We have sold other positively geared properties at zero capital gain on the promise of help from the banks in selling this one, and the banks have reneged. In hindsight, I can say with some authority that Western Australia has a property bubble. Profiting from it is not as easy as this story makes out.

We have lost all of our 28 years of Super savings, and I will have to work at least another 4 years till I am 72 to get out of this."
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That leaves inexperienced investors with having to rely on super funds to manage their retirement savings, which is risky in itself:

"Australians are paying $31 billion in superannuation fees every year, with half that money going to funds that manage just 30 per cent of all accounts, according to a report commissioned by Industry Super Australia.

And banks are raking in about $8.7 billion of those fees, making super "a honey pot for Australia's scandal-prone banks", according to Industry Super Australia chief executive David Whiteley."​

https://www.bunburymail.com.au/story/4691656/australians-paying-31-billion-in-super-fees-every-year/

Bit depressing really.