SMSF’s may no longer be able to borrow to invest in property

I wanted to communicate an important change in the lending marketplace.

If you have ever contemplated using your super to invest in residential property with borrowings, you must work out if its appropriate and advisable to do so now as your window of opportunity is closing.

A major lender in this space, St George/Bank of Melbourne announced today that it will no longer offer SMSF loans. It follows nab’s exit a few years ago. With increased pressure on banks to tighten credit policies, there are now only a handful of lenders that offer SMSF loans.

To add to this, a number of recommendations (such as the Murray Inquiry) have been made to the government to remove the laws allowing SMSF’s to borrow. Plus the Shorten government has said that it will ban SMSF from borrowing if they win the election.

AMP is now the only lender in Australia that provides SMSF loans that also have an offset account attached. An offset account is very advantageous because it allows investors to park cash against the loan to reduce interest costs but still gives them access to that cash for future investments (e.g. into shares to diversify a SMSF’s investments).

My advice: Speak to your adviser(s) ASAP to work out whether it is appropriate and advisable for you to invest your super into residential property with borrowings. If it is, you should attempt to implement that tactic sooner rather than later.

I must say that SMSF borrowing has its pros and cons and can be an excellent strategy for some people. That said, I typically prefer to see clients invest in property outside of super and use super to invest in shares and bonds. It is simpler and clearer (i.e. no SMSF needed) and provides more diversification.

If you have any questions, don’t hesitate to reach out to us.