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It’s been quite the journey for SMSF lending in its 18 years in market. Back in 2007, it was born from amendments to the Superannuation Industry (Supervision) Act 1993 (SISA). This allowed for limited recourse borrowing arrangements (LRBAs) for SMSFs.
Richard Chesworth, head of speciality lending at Bluestone Home Loans, has followed this journey closely. He recounted the near-death moment of SMSF in 2014, when Recommendation 8 of the Financial System Inquiry proposed abolishing LRBAs.
This could have put an end to SMSF lending, but in spite of these challenges, it remained strong. It was not the end of trouble; however, as between 2015 and 2022, there were multiple reviews by the Council of Financial Regulators that kept scrutiny high.
Even this year, there were debates as the Greens pledged support for reforms that would restrict SMSF lending.
The government has confirmed it will not pursue these reforms, but these challenges have kept SMSF lending under the microscope.
Despite mixed opinions early on, many embraced this new means of financing. According to Chesworth, SMSF lending has become “mainstream”, in stark contrast to its humble beginnings in 2007.
This has led to the current position of $72 billion of SMSF assets that have been acquired with the use of borrowing. Bluestone has supported SMSF borrowers and brokers since the beginning.
What spurred this immense growth?
Now, 18 years on, SMSF has become immensely popular. So much so that, according to Finni Mortgage principal Eva Loisance, it represents a fifth of her deals.
Loisance said that while it has been growing in popularity since its inception, the last five years have been particularly busy.
“Lenders have been actively responding to the surge in SMSF lending demand by increasing LVRs, easing liquidity requirements, and expanding servicing capacity,” she said.
“At the same time, growing competition among lenders has played a huge role in driving these improvements pushing institutions to streamline their processes, sharpen their pricing, and make SMSF loans more accessible than ever.”
Chesworth said that SMSF lending has made the purchasing of property a reality for more Aussies.
With the cost-of-living crisis continuing to bite many and property prices at record highs, borrowers are forced to become creative.
“It’s made the purchase of a sizeable asset such as a property achievable for more SMSFs, as without the leverage of borrowings, this may not be possible,” Chesworth said.
“It’s enabled an SMSF to have exposure to property, while at the same time achieve a diversified fund with other investments such as shares and managed funds, so they don’t have all their eggs in one basket.”
Both Chesworth and Loisance expect the popularity of SMSF lending to continue and to grow even further.
“The appeal of SMSFs lies in their flexibility, tax advantages, and the ability to invest in tangible assets like property. As more Australians become financially literate and seek control over their super, brokers are seeing increased demand, especially from self-employed clients and business owners who want to own their premises through their SMSF,” Loisance said.
Despite the increased attention from borrowers, Chesworth urged those considering SMSF lending to seek advice before committing. It may not be appropriate for everyone and remains a niche strategy for a reason.
[Related: Unpacking the rising popularity of SMSF investment]
