Banks ban off-the-plan lending for SMSF's investors.
Increased interest rates and tougher lending conditions might just be the beginning.... Banks ban off-the-plan lending.
AMP has recently tightened the terms in which they will lend to SMSF’s for property purchases, firstly they have dropped the loan to value ratio from 80% to 70% and have advised that they will no longer lend for new properties, including off the plan developments. Also Super funds wanting to borrow must have a minimum balance of $200,000.
The SMSF market has grown considerably in recent times due to the plethora of investment opportunities perhaps driven by the ability to borrow to buy property in super. The government has recently said they are happy to continue with LRBA in super, however it is a real risk that this view could change with a change of leadership.
SMSF trustees looking to get into the property investment market may find it harder to get a loan from the bank, during the first quarter there appears to be further pressure on SMSF property investors with AMP leading the way by changing their lending policies on off the plan property investments through super.
These changes are a reaction to the new APRA changes, as AMP departed the market last, having no choice but to do so to satisfy the Regulation’s and shut itself off to new lending for many months. As AMP re-entered the market in December 2015 it came with harsh new restrictions designed to sustain book growth.
Many of the other lending institutions have already followed suit in relation to loan to value ratio’s, however have not publicly commented on fund size to date. The most significant changes introduced by AMP are the changes for ‘Off the Plan’ policies that include lending or not lending to properties that are less than six months old. This should help curb the property spruikers enthusiasm and slow purchases of low quality housing in low quality locations; such as mining towns, and the latest tourism hot spots.
In 2106 if you are serious about getting into the property market using your SMSF you will have to do your due diligence and shop hard for SMSF lending.
Below are points to consider before deciding that an SMSF purchase is right for you.
Ensure you are able to pay a substantial deposit up to 30-40% plus stamps and other fees. If the property has already been established then most lenders in SMSF lending should accommodate you.
On the flip side if you think you need to borrow 80% of the maximum loan to value ratio, it will limit your options in term of lenders.
Engage a planner that has experience dealings with SMSF loans or one that also has a broking arm attached to the business. These are complex and expensive transactions and paying for good advice is money well spent and could save you thousands in the future.
Consider loan products that have offset accounts attached to them, many SMSF investors hold large amounts of cash and a great place to park these funds can be your offset account. Not many lenders have offset loan accounts for super, so keep your eye out for offer’s that do.
Consider Legislative risk, the rules can and do change all the time, the government gave indication that borrowing through SMSF is here to stay, however the David Murray financial system inquiry had recommended that SMSF borrowing be banned.
We know the Government gave every indication that LRBAs would continue to be allowable last year, but it is important to remember that David Murray’s Financial Systems Inquiry had recommended such loans should be banned. The government approved 43 of Murray’s 44 recommendations, with the only one rejected being a proposed ban on SMSF borrowing. It appears that SMSF borrowing is being used as a political tool, the rules may change with a change of government.
Related party loans – loans from yourself or your business to your SMSF – to purchase investment properties, you only have until 30 June this year to make sure these loans are on commercial terms. On related party loans, the ATO plans to get tough immediately following the 30 June, 2016, deadline.
The information contained in this blog should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in this blog are extremely complex and require high-level technical compliance.
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