While administrative reasons are commonly cited for their departures, the moves are widely understood to be influenced by industry-based commentary that property investment funded by SMSFs may add risks to the financial system – but not everyone agrees.
Mortage Ezy is one such player. Group CEO Peter James says “Mortgage Ezy has had a history of successfully offering niche products – including non-resident, non-conforming and alt doc loans – and we see SMSF no differently. While we’ve enjoyed incredible growth and success in the two decades we’ve been in business we’ve never put processes before our customers and so have always remained nimble enough to look at every application as an individual, and not just a profile.
“When approached in this way, and with the increased minimum requirements for SMSF loans,we see no greater risk to SMSF than for any of our other product offerings.”
The rise in the popularity of SMSFs over the past 20 years has been nothing short of meteoric. According to stats from the ATO, SMSFs now represent nearly a third of the $2.3 trillion invested via superannuation funds, and approximately 1 million Australians now manage their own super.
In the five years to 2017 SMSFs grew from 473,000 to 597,000 with an average of 34,000 new SMSFs established each year – and funds experienced annual positive growth for the five years to 2016 – achieving 2.9% in 2015-16 – and returns were in line with those achieved by APRA funds.
The concept of using superannuation to buy property is nothing new – it’s been happening since the 90s. Petrol was poured on the fire, however, when SMSFs were first allowed to borrow to buy assets– under Limited Recourse Borrowing Arrangements (LBRA) – and this was then further cemented when this was extended to include borrowing to buy residential property in 2010.
The ATO statistics show that since then there has been 50-fold increase in the amount of borrowing by SMSFS during the seven years to 2017, but this is still a minority strategy for investors with only 7% of SMSFs having LRBA borrowings. Interestingly of the $25 billion borrowed by super funds, more than 90% is invested in property (split 50-50 between residential and commercial) and with an average loan amount of $372,000.
As at 2015-16 the value of the estimated assets held under LRBAs as a proportion of total SMSF assets remained relatively low at approximately 4%.
Looking at the mortgage industry as a whole, SMSF purchased property still makes up a very small percentage. In 2017 the total value of residential loans in Australia in 2017 was just over $1.7 trillion, and the total LRBAS amounted to just $30.73 billion. Taking into account that roughly 90% of LRBAs are used to purchase property, the total value of residential property purchased in SMSFs still only accounts for approximately 0.50% of the value of all residential properties in Australia.
James commented, “The increased entry requirements for a SMSF loan make it much harder to buy property with a SMSF than buying an investment property on your own. The SMSF would normally have to provide at least a 30% deposit, fund stamp duties and fees, and also have a minimum of 10% liquidity.
“Investors buying outside of SMSF are not subject to anywhere near the same level of hurdles to jump over.
“We launched our SMSF products in 2017 – both for new purchases and refinances – and have watched the category grow steadily every month to where it is now one of the most popular niche products we offer. Brokers bring their clients to us because they know that we offer a personalised service – treating everyone as an individual not just a number, and we provide borrowers with solutions that work for them.”
Mortgage Ezy offers rates for SMSF loans from 4.99%* and up to 65% LVR.
*Interest rate is current at 21 August 2018 and is subject to change. Terms, conditions and charges apply and are available on request. All applications are subject to Mortgage Ezy’s normal credit assessment criteria. Mezy Assets Pty Ltd T/as Mortgage Ezy. Credit Licence Number 494807.