Self-managed superannuation fund (SMSF) lending environment
SMSF loans have gotten significantly difficult to qualify for since all the major banks such as St George, Westpac, CBA, ANZ, pulled out in 2018 while some non-major lenders also started to pull out of SMSF lending space in 2019.
Even NAB who technically still offer SMSF loans requires $5 million in the fund, so no one actually qualifies for it.
However, there are other banks and specialist lenders who still provide SMSF loans and the competition is heating up in the space.
And that’s who we’re working with.
SMSF property investment example
Find out how we were able to help this couple purchase their second SMSF investment property under a challenging SMSF lending environment.
Here’s a snapshot of the SMSF property investment loan, we were able to get the couple approved for:
- Borrower: B & M SMSF PTY. LTD
- Guarantors: Bob and Melissa
- Loan amount: $262,500
- Loan to value ratio (LVR): 70%
- Interest rate: 5.39% p.a.
- Loan term: 30 years
Let’s meet the customers
Bob and Melissa were a couple who held an investment property under their SMSF and wanted to utilise the extra funds in their SMSF to buy another property.
Their existing SMSF loan details:
- Loan outstanding: $372,594
- Property value: $547,000
- Monthly repayments: $2,195/month
- Interest Rate: 5.79% p.a.
- Rental income: $480/week
They both had a stable employment history with good income and a great credit score.
Moreover, their asset position was excellent with one owner-occupied property and one investment property held in their self-managed superannuation fund (SMSF).
SMSF loan purpose and objective
One of our SMSF home loan broker, Nirayu Shakya established everything that the couple wanted to achieve with their SMSF loan.
They wanted:
- To purchase a second investment property under their SMSF Trust;
- To find a lender that will accept loans under their SMSF;
- To save money by reducing the amount they pay in interest & fees; and
- To minimize their repayments on this loan.
They had a total deposit for the second property of around $143,000 which needed to be rolled over to the SMSF.
- $75,203 in their SMSF in their form of cash, shares and fixed deposits.
- Existing funds in their SMSF mortgage offset account of $50,000.
- And a personal super contribution from the Bob of $10,788 and Melissa’s contribution of $7,737.
The SMSF loan process
In the current SMSF lending environment, lenders can pick and choose who they lend to.
After pouring through all the documents and a full assessment, our SMSF specialist mortgage broker, Nirayu Shakya was confident the deal was solid.
While the SMSF serviceability and liquidity requirements were both tight, it was within standard lending policy.
What often trips up SMSF borrowers is the sheer number of documents required by SMSF lenders before they’ll approve an SMSF loan.
The reason is simple, banks have very few credit officers who are experienced in handling these complex ownership structures.
In this case, apart from the standard documents required such as IDs, payslips and Notice of Assessment (NOA), the lender was provided with:
- Superannuation Trust Deed for a Self Managed Fund (signed and certified);
- SMSF Company Constitution (signed);
- A certified copy of the custodian trust deed (Holding Trust Deed Of Establishment);
- SMSF Financial Statements including, copy of superfund tax return, copy of superfund audit report, minutes of meeting of trustees etc.
- An independent Signed Audit Report;
- Statement for the existing SMSF loan;
- SMSF home loan offset account current balance;
- SMSF investment portfolio statement;
- A tax invoice for the SMSF;
- Rates notice for the investment property held under their SMSF;
- Rental statement;
- Personal annual super statements.
We’ve create a handy SMSF loan document checklist that you can follow.
Additional documents requested
It is standard for lenders to request additional documents depending on the deal i.e. if the servicing is tight, they’ll want the latest income evidence and they’ll also likely ask for more income documents.
In this case, the lender requested more documents (missing information request) on three separate occasions which were complied with. They were:
- Accountant’s letter confirming confirming the company trustee is not trading and in this case, declaring the trust holds an investment property;
- Latest portfolio valuation (managed investment in shares); and
- Statement for ongoing fees and costs of the SMSF including setup and accounting fees.
Nirayu followed through with all of the lender’s request but when the credit assessors of the lender were dragging their feet, frustrated, he got in direct touch with the lender’s business development manager (BDM).
He explained the deal and after a back and forth and follow up emails, got the deal pre-approved for the full loan amount.
A happy ending
When it was all said and done, the couple achieved everything what they had wanted to.
The SMSF pre approval was obtained on December and in January the loan was formally approved.
Settlement soon followed after the contract of sale was fully executed.
Loan details:
- Formal approval date: 10 January 2020
- Interest rate: 5.39% p.a.
More importantly, they got a better interest rate than their existing SMSF loan by over 40 basis points or 0.40% p.a.
Are you looking to purchase a SMSF investment property?
We specialise in SMSF loans as such we have more SMSF property investment example. Get in touch with us to learn more!
Speak with one of our specialist mortgage brokers by giving us a call on 1300 889 743 or by filling in our short online assessment form to find out if you qualify for an SMSF loan with competitive interest rates.