NAB has justified its exit from lending to SMSFs for residential property by referring to “worrying” and “dramatic” growth in the area, while the head of an investment research company has blamed troublesome SMSF borrowing activity on non-traditional lenders.
Speaking at the release of the fifth Intimate with Self-Managed Superannuation report, a CoreData report prepared for nabtrade and the SMSF Association, CoreData founder Andrew Inwood said while the large banks generally put restrictions on LVRs and other lending criteria, this tends not to be the case with non-traditional funders.
“NAB no longer does residential loans [for SMSFs] and CBA processes SMSF loans through its business bank so it’s got to go through its banking business criteria,” he said.
“Most banks insist on [an LVR of no greater than 60 per cent], so you can’t turn up with 10 per cent, you’ve got to have greater than 40 per cent [of the value of the asset]. It’s the non-traditional funders that are doing those sorts of loans.”
Gemma Dale, head of technical services at NAB's wealth management partner, MLC, said the bank made the decision to cease residential lending for properties within SMSFs earlier in the year, following “dramatic growth in that area”.
“We didn’t have any specific areas of risk or any pockets of activity that we were particularly nervous about, but we simply thought in a very large organisation there had been dramatic growth in this area – very, very dramatic growth and very large amounts of interest as well,” she said.
Ms Dale said it was also difficult when customers did not understand why they did not meet the requirements for an SMSF loan.
“It was quite challenging to say, 'You need to follow all of these rules and all of these steps, and if you don’t, we simply cannot do it for you.' They were a little shocked at that,” she said.
“We’re comfortable with the decision. I don’t think anyone is happy seeing dramatic growth in lending in SMSFs; I think we find that a little worrying.”