APRA crackdown forces SMSF lenders out of the market

Speaking to Mortgage Business’s sister publication SMSF Adviser, Thrive Investment Finance owner Samantha Bright said the SMSF lending landscape has lost its competitiveness since APRA announced its curbs on investor lending.

“It’s not that the banks don’t want to lend; they’re being forced not to lend,” Ms Bright said.

“Before these changes [from APRA], we actually had more players coming into the market and looking at these products. I actually had some small lenders asking me to look at the products they were planning to release,” she added.

Ms Bright said that while it is beneficial that the changes are helping to limit lending to the most suitable SMSF borrowers, the smaller number of lenders has meant longer turnaround times and reduced competition.

“It’s gone from having a pool of lenders to barely a puddle,” she said.

She added: “The appetite from the lender is still there and, if you jump ahead a few pages, the lenders that are still doing SMSF lending are going to hit their APRA lending targets quickly, so we’re not sure how that’s going to play out.”

Certain non-APRA-regulated SMSF lenders have also recently put their rates up, she said, simply because they are able to.

Ms Bright added that she is concerned by SMSF investors who are buying property off-the-plan.

“If they've bought something off the plan that won’t be completed for another six months, I think they’re going to be completely shocked by what happens in six months because there may not be any lenders around by that time to settle their loan,” she said.

“What if you had a pre-approval with AMP Bank and your property was due to complete in October – what are you doing now? You’ve had to go to another lender. And if that development gets delayed until December, what are you doing?”

She continued: "Let’s say you’re an SMSF lender and you need an 80 per cent LVR. Right now you've got Macquarie and Bank of Queensland, really.

"Yes, you've got CBA and Westpac, but you basically have to be an orthodontist with half a million dollars in your fund to qualify. If those lenders change over the next 12 months and you've paid a deposit [on an off-the-plan property], what are you going to do?"

Ms Bright said that she is still writing "quite a bit" of SMSF loans, but fears that she could be seeing the "tail end" of it as the future of SMSF lending remains uncertain. 

A ban on personal guarantees for limited-recourse borrowing arrangements (LRBAs) by the government could see all institutions completely exit SMSF lending, she added. 

"If the government decides to implement a ban on personal guarantees as a restriction on LRBAs, then this will mean the banks have no recourse if the loan defaults," she said.

“I can’t see banks continuing to lend in this format if they didn't have personal guarantees, to be honest, because otherwise they have no recourse basically – they've got to get their money back somehow.”

Ms Bright said she has been informed that the banks already struggle with the use of personal guarantees to reclaim their money in situations where SMSF loans have defaulted.

“The rate of mortgages in default in these structures is extremely low, but they’re actually struggling with how they do reclaim these assets,” she said.

Meanwhile, South Australia-based broker Joe Di Pietro of CFI Finance told Mortgage Business that while investor loan changes have been largely positive for his business by allowing him to review his clients' loans, they have had negative effects on his SMSF clients. 

“Some SMSF loans that were about to be lodged that couldn't be done any more, because of the instant lowering of LVRs by some lenders that caught us off guard a little and therefore we lost those deals,” Mr Di Petro said, “but overall the APRA changes have had by far a positive result in our business and for our clients.”