Brokers have said the ban on new residential borrowing has significantly impacted pipelines, unsettled trustees, and raised fresh questions about who benefits from the reform.
The government’s decision – struck with the Greens – to prohibit future limited recourse borrowing arrangements (LRBAs) for residential property inside self‑managed super funds has drawn sharp responses from brokers who have said that the change will hit ordinary investors hardest.
Shock announcement collides with slow SMSF timelines
Nick Wilcox, partner and finance broker at Blue Crane Capital, said the timing and nature of the announcement had caught the SMSF community completely off guard.
“It came as a genuine shock, in the lead‑up to the budget, a lot of accountants and economists were broadly supportive of the SMSF lending environment, it’s a significant policy shift that will have real consequences for trustees who were already well advanced in their planning,” he said.
Wilcox said that the biggest pressure point was the pipeline of clients part way through the lengthy process of preparing to transact on residential property through SMSFs.
“Establishing an SMSF takes time, and a significant number of those clients will struggle to meet any legislated deadline,” he said.
“This will inevitably push some clients toward commercial property, but that pathway isn’t available to everyone – commercial SMSF lending typically requires a larger deposit, and not all trustees have the balance to support it.”
Rush to beat the ban with sunk costs on the line
Both Wilcox and other brokers are already seeing a scramble to get transactions completed before any legislated cut‑off.
“I already have clients for whom we will prioritise everything to ensure they don’t miss the window, setting up an SMSF costs $3,000–$5,000, and many clients will have already rolled funds over into a holding account earning little to no return while they waited to transact,” he said.
“If they miss the deadline, they’re not only out of pocket on set-up costs – they’ve also foregone investment returns in the interim.”
Prestige Home Loans owner and broker Matthew Kopp is seeing a similar pattern.
“I have had about 10 phone calls since 2pm yesterday, all inquiries on their current SMSF applications, or getting one in before this ban takes effect. Unfortunately, the time frame is going to be too restrictive for most, and many investors are going to miss out,” he said.
“These changes will materially impact my business given that about 40 per cent of our inquiry volume comes from residential SMSF channels.”
Ordinary investors v ‘wealthy’ narrative
The brokers also blasted the government for framing SMSF property borrowing as a niche, high‑risk activity, saying that their books are dominated by middle‑income trustees using leverage to add a single asset to a diversified retirement portfolio.
Kopp said: “The reform feels like an unnecessary overreach to me.”
He said that SMSF borrowing was already constrained “in terms of borrowing capacity and the speed at which you could acquire properties”.
Yellow Brick Road Home Loans Leppington branch principal and broker Mel Falanga echoed that concern, describing the ban as an obstacle for everyday Australians.
“It is yet another restriction on everyday Australians’ ability to save for their retirements and restricts investors’ ability to invest in residential properties, which will have an effect on a developer’s sales pool and their ability to build properties to add stock to the market,” he said.
“From what we are seeing, our SMSF customers are the mum-and-dad investors.
“They have one property in their super fund and then balance this investment with shares and other assets. Customers with multiple properties in their SMSF is very rare. So, to say they are targeting the wealthy investor, this is not what we are seeing.”
He also questioned why commercial property remained open to SMSFs if the policy was aimed at curbing risky wealth strategies.
“If they were targeting the ‘wealthy’, why is commercial property in SMSF still on the table? Commercial investment – in any entity, is for more savvy and experienced investors,” he said.
Business models and product risk in the firing line
Falanga also pointed to the longer‑term consequences of the change, particularly in the non-bank sector that supports the majority of the SMSF lending market.
“I have spoken to a few lenders and they are waiting for the official announcement,” he said.
“As soon as it comes in to law, there will be no residential SMSF loans written. This will be a big blow to the non‑major bank finance industry.”
Kopp also flagged the risk of stranded borrowers if product offerings shrink.
“If lenders start pulling products from the market, we’re going to see a wave of legacy loans left at the mercy of their current lender with nowhere to refinance to,” he said.
Wilcox said the change underlined the importance of diversification.
“This is a moment that underscores the value of operating across a broad spectrum of finance,” he said.
Government has ‘thrown a grenade’ at finance industry, says brokerage executive
Evolve Lending and Finance managing director Mark Stevenson said that the government had detonated a complex lending ecosystem without adequate forewarning.
“They have thrown a grenade to blow up the whole thing and are just waiting back to see where the body parts land,” he said.
“The wealth of every home owner in Australia has evaporated into thin air because of these changes, without any clear idea or forecast of the upside, and who will benefit from them.”
He said that the impact was far broader than a small group of high‑net‑worth investors.
“This isn’t just impacting a faceless group of wealthy investors, but the impact is much broader and it’s impacting everyone from mums and dads, aspirational property owners/investors, and even first home buyers who purchased in the last 12–18 months at high LVR who are now faced with the reality of having negative equity on their homes,” he said.
“There are many of this later group who have also turned to borrowing within an SMSF structure to be able to enter the property investor group.”
Stevenson also raised concern about off‑the‑plan purchasers who may find themselves unable to settle under the new rules or tighter lender appetites.
“What will happen to those who have exchanged contracts with off the plan and future settlements only to find either through legislation or lenders adapting to the market that there is no way to complete on their purchase,” he said.
[Related: Government agrees to ban future LRBA for resi]
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