Banks tighten on SMSF property loans

From BS:

AMP Bank advised mortgage brokers it would no longer lend for properties less than six months old, including off-the-plan developments. It also lowered its maximum loan-to-valuation ratio from 80 to 70 per cent, and stipulated a minimum SMSF fund size of $200,000 for DIY superannuation borrowers.

…These stricter loan conditions come after NAB quietly suspended loans on residential property to SMSFs last year (it still lends on commercial property to SMSFs), saying merely it was a neat solution to reduce growth in property loans to investors, and thereby appease the regulatory crackdown on property loans to that particular group.

…Figures for DIY activity also show that SMSF property holdings is one of the few areas of growth against the backdrop of sliding share market valuations and low cash rates. But if you ­intend to join the ranks of SMSFs leveraged to residential property, be prepared to stump up a deposit in the order of 30 to 40 per cent and to buy an existing property to satisfy new and more stringent lender criteria.

Would-be borrowers must also be aware that with the government set to review its decision to allow the practice in three years, and the lenders themselves increasingly choosing not to issue this type of loan, the days of SMSF residential property loans may well be numbered.

Last time I looked, Miranda Maxwell was no “doomsayer”.

David Llewellyn-Smith
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Comments

  1. “AMP Bank advised mortgage brokers it would no longer lend for properties less than six months old, including off-the-plan developments. It also lowered its maximum loan-to-valuation ratio from 80 to 70 per cent”

    Oh, so those dickheads at AMP will now only lend for leveraged speculation and not any real economic activity?

    Can APRA please withdraw their license to print money, then?

    • Cutting lending for new developments and off the plan is all about bubble maintenance. Plus extracting money from an exploding SMSF is messier.

      Though in keeping with the ‘theory’ of macroprudential lending to non-investors will still be encouraged with bait rates as those poor suckers will keep paying their debts no matter how much negative equity they accrue.

    • “Oh, so those dickheads at AMP will now only lend for leveraged speculation and not any real economic activity?”

      Personally I’m happy with any bank cutting back any amount of lending to SMSFs. They shouldn’t be allowed to use any leverage at all.

      • I’m happy for sophisticated investors to borrow all they like as long as they sign a waiver that they will have no claim on the government pension and any other government benifit if they lose the lot… Oh and they can only purchase new builds…

      • I kinda of agree in principle but I think banning borrowing completely is simpler and sends a clearer message that tax-advantage retirement accounts aren’t for leveraged speculation.

      • Yes – the Cooper Review was quite clear that leverage into SMSF was a very bad idea. No reason for it – other than just another bunch of mug punters that the banks could dump with a lump of “freshly minted” interest bearing debt.

        Here is what Bill Shorten had to say – back in the day

        “The Government will undertake a review of leverage in two years time, covering all superannuation
        funds across the industry. This review will determine what impact leverage has had on the
        superannuation industry and whether such arrangements should be permitted to continue”

        http://strongersuper.treasury.gov.au/content/publications/government_response/downloads/Stronger_Super.pdf

    • Why lend to innovators, most of whom fail, or small businesses, most of which fail, with the high risk of default and limited demand when you can instead just juice a circular specufesting orgy that goes higher and higher with endless demand for credit and never fails*? Credit that creates a demand for more credit, Ponzi Finance is every bankers’ wet-dream.

      APRA won’t do shit until it’s blindingly obvious that it’s too late.

      (*until it does)

  2. Thank goodness some common sense starting to prevail. No wonder yesterday morning on the car radio i heard that houses in western sydney have been marked down by $100,000 by desperate sellers because the demand has been rapidly disappearing. The specufestors are clearly not around anymore …

    • TailorTrashMEMBER

      Did they play a bit of Devo after that announcement ?………should have ……..modified

      “When a good time turns around
      You must flip it
      You will never live it down
      Unless you flip it
      No one gets away
      Until they flip it
      I say flip it
      Flip it good
      I say flip it
      Flip it good”

  3. AMP must have have realised that buying off the plan in a falling market is an absolute disaster. While the investment loans to SMSF’s are limited recourse, many fine banking institutions have got around this by insisting on personal guarantees. However the securitisation problem only emerges in say three years time when it comes time to settle and the SMSF’s financier says that the $1m 2 bed unit acquired is now only worth $400k and the SMSF will have to make up the short fall.

    • “many fine banking institutions have got around this by insisting on personal guarantees.”

      I can’t believe this is allowed. If you’re going to legislation that superannuation lending must be non-recourse, why on earth would you leave such a massive loophole?

      • I understand it is the structure of SMSF’s AB that lends itself to opening up the Directors (mum and dad) of the company (which is owned by a bare trust) to guarantees. The PG can then be used by the banks to go after the Directors’ primary residence, car, boat etc that sit outside the SMSF.

  4. Maybe they saw all the reports of shoddy building materials being used in new builds and want the thing to have been standing for at least 6 months before they’ll back it :-p

  5. On the the other side, got a delightful letter from Wespac last week advising that our mortgage has gone up, nothing significant, but had to explain to Mrs Nut the why’s and how’s.