Australia’s second-largest mortgage lender, Westpac (and its subsidiaries Bank of Melbourne, St George Bank and BankSA), have now withdrawn from lending to Self Managed Super Funds (SMSF) looking to invest in property.
The move to “simplify and streamline” their product offering complements a change in lending strategy the banks have rolled out in recent weeks.
Clearly the recent Banking Royal Commission has left banks nervous about loose lending practices and renewed their focus on minimising risks and meeting compliance. Whilst SMSF loans equate to less than 2% of all business loans, it seems this small market share no longer justifies the efforts required of banks to offer these products.
SMSF Association policy head Jordan George dismissed the move from likely being related to any systemic risk, saying: "We think increased capital adequacy requirements by APRA are driving the trend by the majors to scale back. The margins banks can make are being diminished because of the capital they have to be able to hold to offset these loans." The greater complexity associated with SMSF loans and relatively small size of the market were also disincentives”.
In addition regulators are questioning the increasingly popular practice of smaller SMSF using all their funds to invest in a single property and therefore failing to meet the requirement of a balanced investment strategy. This lack of diversification increases risk exposure particularly in a falling property market where it is difficult to find tenants.
It is important to note that the Government has not yet changed any laws around SMSF borrowing. It is still perfectly legal if done correctly. The ramifications of this decision however may be that the cost of SMSF borrowing increases as options available to consumers reduce. Westpac joins NAB and ANZ in their decision not to lend to SMSFs, however the Commonwealth Bank and Macquarie still do, apparently on very stringent lending criteria.
SMSF trustees are continuing to show a growing interest in commercial property as a long term investment opportunity offering stronger security and typically higher yields and capital gains. This is in contrast to an environment where we are seeing an emerging oversupply in the apartment market and lower yields for residential property.
Many of our clients are SMSF investors with commercial property holdings. In spite of Westpac’s recent decision, acquiring property without borrowings within your SMSF continues to be a viable option.
(Please note; If you have any queries about your existing SMSF loan with Westpac or its subsidiaries, please contact your bank directly.)
Written by Aldo Galante
For over 30 years, Aldo has been at the forefront of Australia’s fast-evolving property industry. He served as President of the prestigious Australian Property Institute (Vic), providing determinations on rent-reviews and valuations