FAQs

Here are the most common questions we hear in regards to SMSF Property Lending.

If your question is not listed here, please reach out to us via the contact form, we're happy to help!

Can I refinance my current SMSF loan?

Yes! If you currently have an SMSF loan, you can refinance to another Lender. Many customers save considerable amount of money when moving to a new lender with a lower rate. You must meet the new lenders credit criteria and a specialist SMSF broker will be able to help you. Click here to contact us for more help.

Are low interest rates available?

Yes, but depending on which lender you choose. SMSF loan interest rates typically come with higher rates than standard residential home loans.

However, the difference in loan rates between lenders can be significant so there are still savings to be had.

Apart from rates, look for over things to help with repayments such as;

Loan terms of 30 years (for lower repayments)
Offset Accounts (to help reduce interest charges, deposit rent etc)
Interest-only periods

Why is there only a limited number of lenders in SMSF Property Mortgages?

Lack of expertise

SMSF loan applications have always been difficult for lenders to process, as they are more complex.

In addition, there is more regulation involved, including The Superannuation Industry Supervision Act (SIS Act) sets out strict guidelines as to when and how trustees borrow from a lender.

Lenders have to be sure they are also following the rules and set up the loan correctly.

In a nut shell, the time and effort to get an SMSF loan approved doesn’t justify the return on investment for some banks.

Hint: Choose an expert in the SMSF field and the application is easy!

Reputational risk

Banks are often in the spot light for media, and with more complex (SMSF) lending there is an increased chance of things going wrong, presenting a PR problem. This is one of the reasons why many have left this space.

Is the government concerned about SMSF loans?

The Australian Prudential Regulation Authority (APRA) has been keeping a close eye on the super industry since the ban on SMSF lending was lifted in 2007.

This stemmed from a fear that highly-leveraged SMSF trusts could have a dire effect on retirement savings in Australia.

The use of non-recourse lending for SMSF is a great solution which solves these concerns.

The government has not signalled any intent to change the current status for lending on SMSF mortgages, but this has not stopped the major banks exiting this space completely.

SMSF lending provides vital rental accommodation to many households across Australia and with housing shortages, its very unlikely any changes to current laws will be reviewed.

How Much Can I Borrow?

Standard Residential Property SMSF Investment Loans: Up to 80% of the property value. Lenders can offer up to 90% of the property value, but this will include additional risk based fees.
Commercial property SMSF Loans: Up to 80% of the property value for non-specialised securities. Some restrictions apply to certain commercial property types with lenders.
Amount – most lenders have loan limits of $1.5 to $2m due to asset super cap rules, meaning at 80% lend, the maximum property you should be looking at is $2,500,000 (80% loan is $2m). All lenders vary.
Interest Rates: These change regularly and vary widely with each lender. See our Rates table here
Low doc (no income evidence): Not typically available.
Bad credit: It’s the SMSF that is assessed for servicing the loan, not the individual or SMSF member (guarantor), so having some credit issues is usually not a large barrier, but this is a case by case issue.
Construction finance: SMSF construction finance isn’t typically available. We have options where this is available - contact us.
Off the plan purchases: typically not available for SMSF. Some options can exist for this scenario - contact us.

Lending Policies

Lending policies for SMSFs vary among lenders, particularly in the way they assess your ability to repay the loan.

Its always best to consult a specialist SMSF Broker or Lender who can check which lenders could apply to your situation.

If you dont have a specialist SMSF Broker or Lender, contact us and we can help.

Borrowing Capacity Assessment

The main hurdle most SMSF loan applicants encounter is proving the trust has sufficient income to support the loan and sufficient assets (cash) to pay for the deposit and stamp duty costs.

Lenders will look at the current income of the SMSF based on its previous two years tax returns and will then assess whether that income plus the proposed investment rental income will be sufficient to service the debt.

If an SMSF is new, most lenders ask to see evidence of an accountant or financial advisor has provided help in assessing the choice of investment and the capacity to repay the loan.

What are the restrictions for SMSF Lending?

There are restrictions on SMSF loans, but also some "urban myths". Dont believe the hype, some experts and web sites have information which may be different to us. We try and help every SMSF with every scenario if we're able. If its within the law, we will find a way. In general, properties must be built and ready to use when makes the SMSF purchase.

Urban Myth: Construction loans are not available. Not true. You need to be very careful, but structured correctly, we can arrange New Build / Construction Loans for you.
Urban Myth: Off the plan purchases are not available. Not true. You need to be very careful, but structured correctly, we can arrange a New Build off the plan & Construction Loans in some cases.
Cash Out / Equity Release – not available - the SMSF is able to pay for renovations out of its own funds, but can’t use the borrowed additional funds for this purpose.
Owner Occupied – not allowed - buying a property in your SMSF that you intend to live in as a home is not allowed. Even renting to a relative is not allowed – the lease must be at arms length. However, owner-occupied business premises are acceptable.
Holiday or vacation home – not allowed – if you intend to occupy the premise even for a week a year.
Selling a residential property to your SMSF, that you or a related party owns is not allowed. However, owner-occupied business premises are acceptable to sell into your SMSF.

How Can I Get Approval?

Talk to us via the Contact Us form or a broker who is an expert in SMSF Lending. Ask your broker how many SMSF Loans they have settled. If its less than 10, find someone or Contact Us.

SMSF property lending is more complex with more things that can go wrong.

Use our Contact Us form for guidance, its free and comes with no obligations.

Bare Trust Mandatory For SMSF Loan

In any SMSF borrowing arrangement, the lender lends to the SMSF trustee who doesn’t actually hold legal ownership of the property. In order to meet Super laws (SIS Act requirements) and non-recourse borrowing, there is a Bare Trust and company trustee is set up to hold the property.

You should speak to your accountant when considering entering such an agreement.

In addition to this requirement, the bare trust trustee must be a company with company directors who are members of the SMSF.

Why Use A Specialist Mortgage Broker?

An SMSF loan is a complex loan, and you don’t have direct access to lenders, so it’s better to have a professional to help you obtain these loans. A mortgage broker specialising in SMSF loans will be able to file an application assessing your situation that increases the likelihood of getting a loan. In the initial step they will look at your individual scenario, look at lenders who are a good match and help you with the initial set of paperwork required to start the loan application.

In addition to this, not all lenders can provide an offset account with your SMSF mortgage, which is critically important if you have a lot of cash or inflows from rent and super contributions. A 100% offset account is a regular account, except that it is linked to your home loan account. The lender only charges you interest on the balance of your home loan minus the balance of your offset account. The benefit of this is that you can pay off the loan much quicker and also save a lot of money in interest.

What Is A Self-Managed Superannuation Fund (SMSF)?

An SMSF is a special type of trust that people can set up to manage their own superannuation.

Like a normal super fund, your employer contributions still get paid into the fund, and you can make additional contributions as you see fit.

However, unlike a normal super fund, the trustee (you) have direct control over the assets that your superannuation is invested in.

Many people also use their SMSF to help plan for their retirement and assist with tax planning.

Many self employed people have an SMSF, as there are definite advantages such as purchasing your commercial premise in the SMSF and renting it to your business.

When Is An SMSF Allowed To Borrow Money?

There are laws restricting the use of SMSFs to borrow money, and restricting the recourse of the lender in the event that the trust cannot meet its repayment obligations.

A basic outline of the rules a trust must follow in order to borrow money is as follows:

The asset is an asset the SMSF could otherwise legally acquire (if it had the funds).
The asset is held on trust for the SMSF using a security trust (known as a security custodian or bare trust).
The SMSF acquires a beneficial interest in the asset from the outset.
The SMSF has the right to acquire legal title from the security trustee upon making all loan repayments.
The lender must only have limited recourse against one particular asset. This means that in the event of a loan default, the lender must not be able to claim any other assets of the SMSF.
Each borrowing arrangement can only be for a “single acquirable asset”. In the case of strata title or subdivisions, each title is considered a separate asset.

How long does it take for an SMSF Loan application?

We recommend that you apply for the loan at least two weeks before you begin looking for a property. Talk to a specialist broker first to get an idea of the information required or contact us for help.

How Long Does It Take To Get Approval?

Many customers take around a week to collect the documents required to apply for the loan, then it often takes lenders another week to assess and accept the pre-approval application.

Since SMSF loans are more complicated than most other loans, it takes longer to get approval for them.

It usually takes between 5-10 business days from submission to unconditional approval.

Remember: SMSFs need to be up to date on tax returns. For example most lenders will want the previous years tax returns to assess the application. Cut-offs are typically 1st April each year. For example, 1st April 2023, most lenders want the FY22 financial information including tax returns. Prior to 1st April, (ie 1st Jan 2023) its acceptable to present FY21 information, but helps considerably if you have the recent returns, because in most cases, there are additional contributions in the fund.

How Will The Loan Be Structured?

The loan is made out to the corporate trustee of the SMSF in its capacity as a trustee with the security custodian as mortgagor. See our image above. The lender has limited recourse, and if the loan is in default, they have no ability to claim any of the other assets held by the trust.

All lenders require guarantees from the members of the superannuation fund. However, the guarantee is modified to ensure guarantors do not have recourse to the super trustee in the event that there is a default on payment under guarantee.

Can I have a "No-Deposit" SMSF Loan?

Yes & No!

No: You need a minimum of 24% to 25% of the purchase price to cover your 20% deposit and the other costs such as stamp duty.

Yes: Your existing superannuation funds can be your deposit. If you have $100,000 in cash / shares then you can use this as a deposit to buy a property. This means that you may not need to 'save' a deposit in your own name like you would for a traditional investment property purchased outside of your super fund.

Some lenders only require 10% deposit - contact us for more information.

Do Lenders look at the Members Incomes?

For new trusts, some lenders will look at the current income of the trust members, the previous super contributions they have been making and their new proposed super contributions.

Their loan can be assessed based on their proposed super contributions if they are within the maximum amounts allowed by the ATO and if they can afford these contributions without hardship. A letter from your Accountant or Advisor is often required if there is a proposed large step up in future contributions to afford the loan.

Lenders know the maximum amounts that you are allowed to make as concessional and non-concessional contributions. These limits can change from year to year.

They will decline loan applications that require contributions in excess of these amounts to prove your SMSF‘s ability to repay the debt.

Will The Lender Accept My Super Contributions?

Most lenders accept super contributions. A broker specialising in SMSF loans will be able to tell you if a lender will accept your super contributions or not after assessing your situation.

Will The Lender Accept Other Forms Of Income?

All lenders vary. Some lenders accept income from shares or bank interest from the current assets of your trust. If you are selling these assets to provide the deposit to purchase the property, then that income cannot be included in the lender’s assessment.

Can My SMSF Buy A Property From My Personal Portfolio?

Your SMSF can buy a commercial property that you already own; however, your fund cannot buy a residential property that is owned by you or a related party.

The penalties for getting it wrong could include paying a large percentage of your superannuation fund balance as penalty tax – so it is best to get good advice from the outset.

We recommend that you discuss any potential tax implications of transferring a property from your name into your SMSF with an accountant that specialises in Self-Managed Superannuation Funds. We can help recommend you an accountant if you want one.

How Do I Apply For An SMSF Loan?

There are few mortgage brokers and direct lenders that understand Self-Managed Super Funds (SMSF), and even fewer who are experts in lending to them.

Use the Contact Us tool and we can help you.

What To Consider Before Setting Up An SMSF

Setting up an SMSF is a big decision requiring lots of thought and thorough research. Before setting up an SMSF, talk to your accountant to understand the costs involved. If you have an SMSF, talk to a specialist broker first to understand the finance aspects and what you can afford.

What are the downsides to SMSF Property?

You cant live in it or even occasionally holiday in it
You cant access redraw / equity release from the loan for renovations (you must use the SMSF cash for this)
Interest rates are slightly higher than regular residential loans
More paperwork – there is more paper work in the application for a SMSF Loan
Construction or Off the Plan sales are generally not allowed, but in we have solutions for this.

ATO Guidelines and information relevant to SMSF Lending

If you want to read the ATO Tax Guidlines, click here