Screws tighten on SMSF mortgage lending

By Leith van Onselen

Last month, The Australian’s Robert Gottliebsen warned that the tightening of lending standards pertaining to self-managed super funds’ (SMSFs) property investments threatened severe financial pain to borrowers caught out by the changes:

…This is how the scam worked. There are a huge number of unsold, used and new small inner city apartments that sellers are desperate to get rid of. They engaged a series of real estate sales people on truly enormous commissions to sell the apartments at inflated prices. The sales people were linked to people who would set up self-managed funds (or use existing ones) and arrange the borrowings. Melbourne was the home of many of the scams but they existed in Sydney and Brisbane. Most apartments were sold above the top of the markets and they have fallen at least 20 to 25 per cent in value. And if the unfortunate self-managed fund beneficiary bought an apartment in Melbourne that was cladded in flammable material the fall might be 50 per cent or greater — if they can find a buyer at all.

This warning followed Westpac’s abandonment of SMSF mortgage lending:

Westpac is set to rock the increasingly nervous property market by withdrawing new loan offers to self-managed superannuation funds looking to invest in property.

…The move has shocked mortgage brokers and financial advisers, who act as intermediaries between borrowers and the banks, but complements a change in lending strategy the banks have rolled out in recent weeks.

…”We continually review our products and services to ensure they meet the requirements of our customers,” a Westpac spokesman said.

“In order to simplify and streamline our self-managed super fund products, we will be withdrawing from sale our SMSF home loan product and business lending to SMSFs, effective Tuesday 31 July 2018.”

A few days later, four separate lenders announced their exit from the SMSF lending space, with a further two banks saying loans will no longer be offered to SMSFs.

On Tuesday, AMP joined the conga-line, announcing that it would also reduce its exposure to SMSF mortgage lending:

AMP Bank will no longer offer interest-only payments as a payment option on new SMSF applications received from 7 August 2018…

Effective 3 August, AMP Bank will also be making pricing changes for new SMSF loans, increasing the variable interest rate for its AMP SuperEdge loan product by 0.25 per cent to 6.44 per cent.

It will also be increasing fixed rates for new SMSF loans by 0.80 per cent…

“These adjustments are in response to recent market changes as well as the Bank’s focus on managing its portfolio responsibly while balancing this with the needs of our customers, shareholders and regulators,” said the spokesperson.

The stampede out of SMSF mortgage lending follows damning evidence presented to the Banking Royal Commission in April, which revealed how one of Westpac’s financial planners advised a client with $200,000 in an industry fund account to set up a SMSF, sell her home and take out a loan to buy a million dollar investment property.

Following Westpac’s exit, Commonwealth Bank is now the last major institution lending to SMSFs. But for how long?

Leith van Onselen


  1. – As soon as I learned that people were putting properties in their SMSF with but also without leverage, I knew that this would end up in tears the moment the property prices were to go down. And that moment has now arrived.

      • edwin,

        That may not be completely true. Not long after this started banks were getting the individuals to sign personal guarantees for their SMSFs.

        Edit: even then it just limits the smsf loss. They’ll just bleed to death slowly.

      • SMSF loans are full recourse to the members. Do you think the banks would lend money without personal guarantees?

        The misconception was created as these loans are commonly called Limited Recourse Borrowing Arrangements. All this means is that the tangible security for the loan is limited to the property itself, and not the other assets of the SMSF.

  2. I find it hard to believe it was ever allowed in the first place, shows how desperate the bubble crowd were (are?). Have we reached peak madness yet?

    • proofreadersMEMBER

      Was being able to borrow within a SMSF, another of the Howard/Costello “gifts that keep on giving”?

    • I want to get the popcorn but I have this terrible feeling that as taxpayer I may end up bailing these clowns out somehow.

  3. You really wonder how people can be so stupid. I reckon it stems from fomo during the weekend bbq, everyone else has an IP and has made x amount of money (not considering all the losses) so I want one too at any cost. A friend works in finance and sets up loans for rural newbuild investments. He regularly takes calls at all hours from applicants when out and I ask about their financial situation. 1mil house in Syd/mel, 6-700+k mortgage borrowing another 500k on an IP newbuild house or apt. That’s a lot of debt! There will come a time when those IPs will be offloaded for whatever it takes to keep the family home. If you got cash lying around there will be some massive opportunity coming up during the next gfc.


    A tradie friend of a friend ( mid 50’s) attended an ‘information’ event and five hours later was the owner of a MEL bayside apartment not yet built. Acquisition cost including the property commission turned his formerly CBUS $85,000 into $50,000. Now has a self-managed fund with huge admin /audit fees and a non-recourse loan and also didn’t know he lost his insurance with CBUS either. Despite the heavy remorse, was still certain it would deliver as promised.


        His ‘buy’ was in early 2016. Can’t imagine things are tracking any better now. The tale just stayed with me and not just from the massive ‘launch’ costs, but the man’s peculiar certainty that he’d tapped a winner and a complete avoidance of the prospect that he’d been royally had.

      • Optimists die slower than pessimists. “It’s only a flesh wound!”

        I know what you mean about the stories that stay with us. He sounds like a good guy who trusts the banking and real estate industry, not wanting to believe he’s being fleeced.

  5. SchillersMEMBER

    In 2013 the new LNP government, with Tony Abbott as PM and Joe Hockey as treasurer, announced an inquiry into Australia’s Financial System (FSI). Led by David Murray it delivered it’s final report the following year. One of it’s key recommendations to Parliament was that Self Managed Super Funds be disallowed from borrowing to invest in shares and residential real estate (principally “investment” properties).
    This recommendation has been completely ignored. 2014-2016 saw SMSFs leverage full tilt into IPs. In 2007 the LNP government under John Howard and Peter Costello changed the rules to allow superannuation funds to gear up to speculate on assets like residential property and shares.
    It was and is an utter failure of Government policy.

    • The warnings go back to 2009 with the Cooper review of Howard’s changes.

      Even back then it was considered stupid policy.

      But blowing asset bubbles with household debt is the key LNP economic strategy of the last 20 years.

      Not that donations from the banks or lobbying by their minions at the IPA would have had anything to do with it of course.

      Recommendation 8.10
      The 2007 relaxation of the borrowing provisions and the consumer protection measures that have recently been announced should be reviewed by government in two years’ time to ensure that borrowing has not become, and does not look like becoming, a significant focus of superannuation funds.

      To assist in monitoring the levels of instalment warrant borrowings by superannuation funds, the Panel believes that credit providers should be required to collect and provide relevant data to APRA that would enable the RBA to publish statistics; in the same way that credit providers must currently report on the level of finance provided for residential purchases, margin loans etc.  These statistics should be at a level that can distinguish the level of finance being provided to SMSFs and
      APRA‐regulated funds.

      Recommendation 8.11

      Legislation should be passed to require credit providers to collect and provide relevant data to
      APRA that would enable the RBA to publish statistics on the level of finance being provided to
      superannuation funds

    • SupernovaMEMBER

      Think David Murray also recommended changes to negative gearing. That negative gearing losses be prevented from being transferred to wages and salaries for reduced income tax purposes.

      • That tax part of the Murray report (which included comments on NG) was gratuitous as he wasn’t asked to comment on tax. As I understand it was put in there by Kevin Davis who was on the FSI Committee.

  6. Most of these so called “financial planners” should be burned at the stake for recommending this stuff.
    As prop is unregulated, I’d love to know how many received commission for referring people to developers. I think more than half potentially?