Yesterday’s letter from APRA to ADIs warning of higher risks associated with SMSF mortgages has been clarified. From Banking Day:
APRA said that for the purposes of its capital adequacy standard, APS 112, SMSF loans are “relatively more complex” than standard mortgages.
“As such, SMSF loans may have a different and potentially higher loss profile in comparison to standard loans,” APRA said.
In support of its position, it pointed out that the super fund was not the owner of an asset purchased with borrowed funds; it was the beneficiary under a separate trust structure.
Also, SMSF loans involve no recourse beyond the asset being funded.
Banks and non-banks in the business include AMP, St George, Westpac Banking Group, National Australia Bank, Commonwealth Bank of Australia, Rock Building Society and State Custodians Mortgage.
The AFR reckons that “the regulator has no major concerns with current practices”, despite the letter.
In short, APRA’s concerns are relevant to SMSF borrowers not in terms of the risks themselves but the higher capital charges that banks will incur and will almost certainly pass on to borrowers.