How to navigate the complexity of SMSF lending

Q. What forces are driving activity in the SMSF lending market?

We have a whole market that’s turning over.

I hear some commentary saying there’s a “shift to safe haven”. That’s not the case because it’s an established and mature market, being 18 years since its introduction on 24 September 2007. LRBAs, the technical term for limited recourse borrowing arrangements, have – since 2019 – consistently represented 7–8 per cent of the total superannuation assets.

When you look at it on that basis, it’s not a “shift to safe haven”. But there’s a lot of activity out there because it’s an established market. You have people acquiring properties, people paying debt out, people selling property, and refinancing. That acquiring and refinancing is really what’s driving a lot of activity, and there’s a lot of activity to be had there as well.

Q. Is the profile of SMSF borrowers changing?

Once we look at the borrowers themselves, they are becoming younger. We’ve both had compulsory super since we started work, whereas the older generations didn’t.

So, there’s already a balance there. At the same time, with that balance accumulating, the ongoing management costs have reduced as well.

Q. What are the key things brokers need to know about SMSF lending?

Brokers need to be mindful of sticking to credit advice. That’s crucial.

A broker plays a key role in this segment because an accountant can’t provide credit advice. A financial planner can’t provide credit advice.

This highlights the important role of a broker in any SMSF lending transaction, as well as how important it is that the accountant and planner work with the broker.

They can’t manage these transactions without your credit advice support.

Q. What challenges do you see in brokers trying to place SMSF loans?

I’ve always said SMSF lending isn’t complex if you have the tools to understand it. And that’s where key lenders like ourselves come into play to actually educate and support the brokers down that path. The first thing is having the key tools, so you understand the structures, and our role is to educate the broker in how these structures work.

Time is another aspect. You want to work with a lender who can assist you through the process. You need someone who’s going to deliver on time and ensure they do all they can to help you and your customer meet those deadlines.

Q. Do you hear any common myths about SMSF lending?

People say it’s complex. It’s not complex if you understand what you’re doing.

I challenge brokers because there are still a number of brokers that haven’t gone down the path. They will shy away from it. I always say your first home loan, that was worry when you first had to do that, your first investment loan was. Your first SMSF loan is as well.

But the more you do, the more familiar you become, and the simpler they become.

Q. What is the secret to success in SMSF lending?

One of the things I like to talk to brokers about is [the idea that] you’re a key piece in the puzzle, but you’re not the only piece. And it’s really leveraging the client’s other relationships there.

Some brokers may not get many SMSF loans over their desk over a 12-month period. They might be quite nervous when they’re doing it, but at the same time, their solicitor may not be really familiar with it as well. Rather than working in isolation, I really recommend that brokers actually be on the front foot, and engage with the solicitor and engage with the accountant and the planner if they’re there, and everyone works together to support the customer in meeting that requirement. Everyone has to work together to support that customer over the line.

Q. What is Bluestone Home Loans doing to support this segment?

When you have a customer who’s purchasing a property, the last thing you want to do is to have to say, “It’s through super, so maybe negotiate a longer settlement period”.

That could be the breaking point to whether they’re successful or not. They don’t have time. So, for us, it’s delivering in a timely manner.

We [also] want to deliver a compliant structure. We may not have some of the bells and whistles other lenders promote, but the reason we don’t is we’re concerned of the compliance risks that may pass on to the customer. It’s focusing on delivering for the broker and the customer in a timely manner.