Borrowing inside your SMSF to purchase property has been a popular strategy since the SIS Act was amended allowing clients to do so. Yesterday the WBC Group advised it will withdraw its product at the end of this month. NAB withdrew its product for residential properties and ANZ have never really offered clients the opportunity to borrow within their SMSF. Yesterday’s change means there are now very few banks left lending in this space.
WBC have pulled their product type due to over extending on their property limits which are monitored by the Australian Prudential Regulation Authority (“APRA”). SMSF loans are classed as investment property lending and APRA has been very active in forcing banks to adjust policies to slow down the investment property market. WBC has assessed its property lending portfolio which will include institutional customers all the way down to mum and dad investors which all add to their property limits. This decision by WBC can be seen as a direct result of hitting their limits.
The result of WBC withdrawing from the market will create additional pressure for those banks that continue to offer the product type as they will see volumes spike, which will in turn place additional pressure on their investment property limits. Will they be forced to do the same?
There are still non-bank lenders who lend in this space and have more generous terms to offer than those of the big banks, the downside is they will charge a higher interest rate. We have been able to successfully use these non-bank lenders to provide solutions to clients who may not meet the bank’s lending criteria.
On a positive note, if you have a loan inside your SMSF with WBC, STG or any of their subsidiaries the bank has advised they will allow these loans to continue as normal. We understand if you were to seek an extension of an interest only term in future this will not be granted.
If you were considering purchasing property inside an SMSF you need to consider bringing your plans forward in the event the borrowing options continue to diminish. The strategy is still very attractive for those parties who are able to maximise super contributions and use these funds to accelerate repayment of debt.
If you have had thoughts of borrowing inside your SMSF or have queries or concerns please contact our office to discuss.
DISCLAIMER: This article is intended to provide a general summary only and should not be relied on as a substitute for professional advice.