No more SMSF loans for property

Retirement savers who want to borrow to buy residential property will no longer be able to get a loan from any bank in Australia.

SMSFs will no longer be able to borrow from banks for residential property mortgages. Picture: iStock

Retirement savers who want to borrow money to buy residential property will no longer be able to get a loan from any bank in Australia after the last of them offering the product, Macquarie, announced it will stop.

The move comes amid a slump in the property market, especially in the formerly red-hot cities of Melbourne and Sydney, that has seen prices for smaller apartments favoured by investors sent into a spiral.

It also follows heavy scrutiny on the self-managed superannuation fund sector, with the corporate watchdog last year finding 90 per cent of advice to set up such a fund broke the law and raising concerns about “one-stop shops” where financial advisers encourage investors to set up a fund and buy property from a real estate agent or developer with whom they have a relationship.

In a note to brokers, Macquarie said it would stop offering residential property loans to SMSFs from April 30.

The bank said it would also no longer be offering family guarantee — or “bank of mum and dad” loans, where a parent guarantees the repayments of a child, effective from this Monday.

It told brokers the changes were “part of our continued focus on delivering the most competitive home loan product and best possible experience for clients”.

“We’ll continue to service existing clients with these products,” the bank said in the note.

The products were a key part of the build-up of the apartment boom, with investors taking on debt in order to buy multiple apartments off-the-plan and using the tax-sheltered system to deduct repayments on their properties.

The value of property investment loans held by SMSFs jumped to $39 billion by the end of the June quarter to make up more than 5 per cent of all assets in the $700bn self-managed super sector. However, the structures have now come under pressure due to falling or stagnant rents and the reluctance of banks to finance such structures, particularly as the underlying properties are now rapidly falling in value.

The area also drew the attention of regulators concerned about excessive fees for setting up the structures taken by financial advisers who also took hefty commissions on selling apartments in bulk to unsuspecting investors.

The recalibration of the market has also seen lending to foreign investors curtailed and many of them have had to seek alternative finance, which has put pressure on developersseeking to settle projects in key cities.

The Australian this year revealed that the surge in property speculation by leveraged self-managed super funds amid sliding house prices had prompted concerns among the powerful Council of Financial Regulators.

Loans for property investment through SMSFs are of limited recourse with lenders only able to call on the property but this often makes up a high proportion of a fund.