Broking industry lashes SMSF property borrowing ban

Under an LRBA, an SMSF uses its balance to fund a 20–30 per cent deposit and costs such as stamp duty and legal fees, with the property held in a separate bare trust until the loan is repaid.

While the major banks exited the LRBA space between 2015 and 2018, a large group of lenders, including La Trobe Financial, Liberty Financial, AMP, Bluestone, Pepper Money, Resimac, RedZed, and Mortgage Ezy, have continued to write LRBA business.

The government’s deal with the Greens will shut down this channel for new residential purchases 45 days after royal assent, yet leaves all existing LRBA loans intact and will allow current transactions to complete.

Peak bodies warn of weaker investment and supply

The Mortgage & Finance Association of Australia (MFAA), the Commercial & Asset Finance Brokers Association of Australia (CAFBA), and the Australian Finance Industry Association (AFIA) issued a joint statement blasting the ban.

To underline the scale of existing activity, the associations pointed to the latest statistics from the Australian Taxation Office, which showed SMSFs holding roughly $75 billion in assets financed through LRBAs, backed by about $28.9 billion in debt – a gearing level of close to 40 per cent.

MFAA executive of policy, Naveen Ahluwalia, said the reaction from clients was already visible in broker conversations.

“Mortgage and finance brokers are hearing from investors who are delaying decisions, reassessing future investments and, in some cases, stepping away from the market altogether,” Ahluwalia said.

Ahluwalia also said that SMSFs have been a key channel helping fund rental properties and new developments in recent years.

“SMSFs play an important role in housing investment and restricting access to lending risks becoming another disincentive for Australians willing to invest in residential property,” Ahluwalia said.

“At a time of housing shortages and rental pressures, the focus should be on encouraging investment that increases housing supply, not discouraging it.”

CAFBA’s chair of advocacy, David Gandolfo, viewed the LRBA decision as part of a wider pattern of tax and regulatory changes weighing on business planning.

“Commercial and asset finance broking is a real time barometer of business sentiment, and our members are seeing an immediate retreat of capital and business investment under this policy and others announced in the Federal Budget,” he said.

Meanwhile, AFIA CEO Diane Tate said that the government was targeting a segment that had long operated under tight guardrails.

“This is a well-understood market that has operated effectively within a clear regulatory framework for many years. Asset limitations already apply to SMSFs and these arrangements are primarily used by Australians seeking to sensibly diversify their retirement savings,” Tate said.

Brokers fear clients will lose a key wealth‑building tool

Meanwhile, brokers said the changes would land hardest on clients who were using LRBAs to add property to their retirement portfolios without locking up their entire super balances.

Tony Xia, director of The Mortgage Agency, said LRBA deals had grown into a meaningful part of his revenue and pipeline, particularly after the initial budget announcements prompted more inquiries.

“SMSF lending took up around 8 per cent of the overall business revenue, we were working our way up to increase this pre budget where we had a lot of traction, and even more post budget we had more inquiries,” he said.

“This news will unfortunately kill a lot of investors out there, it will impact our business.”

He also challenged the government’s argument that the LRBA space lacked discipline, pointing to existing lender safeguards around serviceability and liquidity.

“I think they made the wrong call here, they said it themselves, SMSF lending only takes up a small slice of the pie, lenders have always put in risk measures and buffers in place, such as buffer rates and liquidity required after the loan is active,” he said.

“There is always risk in any investments, I think they went too harsh here.”

Matt Turner, partner and managing broker at GSC Finance, said LRBAs had been an important part of many clients’ long‑term plans and that the restrictions would likely reduce the options brokers could put on the table when discussing retirement strategies.

“This change will further limit our ability to assist clients with overall wealth strategy via debt facilities. This has become a popular way for people to invest their super, without using their entire cash balance to fund the purchase,” he said.

“I am concerned that in making the market fairer for first home owners, the government have now further reduced the ability of those out of the investment market to enter – which is creating a larger wealth divide.”

Turner said he expected some funds to walk away from residential property altogether and added that others may still buy – but by using a larger share of their super balance and no leverage.

“This move will push SMSFs out of property investment, or may lead to some clients using more of their balance towards the property purchase rather than having some cash plus some debt to help fund the purchase,” he said.

Turner’s biggest concern is the fairness gap between existing and future investors.

“It is creating a wealth divide that is larger than ever. Those who had the opportunity will benefit massively from these changes as they were able to purchase with debt, whereas someone that hasn’t will not have that same opportunity,” he said.

“This along with the grandfathering of negative gearing has created a playing field that has never been so imbalanced for aspirational Australians that are looking to build their wealth.”

[Related: Government agrees to ban future LRBA for resi]