Are you a Self-Managed Super Fund (SMSF) trustee?
Do you want to borrow money for your trust? Find out what you need to qualify and which lenders will approve your loan.
How much can I borrow?
We can help you to apply for:
- Standard SMSF Investment Loans: Up to 80% of the property value. However, please note that most lenders will restrict your loan up to 75% of the property value.
- Commercial property: Up to 70% of the property value for non-specialised securities.
- Discounts: Most lenders add a margin to their normal residential loan rates for SMSFs, however these margins vary significantly.
- Low doc (no income evidence): SMSF low doc loans are available although there are many restrictions.
- Bad credit: Up to 80% of a residential property or 70% of a commercial property with an SMSF bad credit loan.
- Standard investment loan rates may be available: Your SMSF structure must meet certain criteria.
- Unusual security or income types: There are specialist lenders that can help.
- Construction finance: SMSF construction finance isn’t available.
Lending policies for SMSFs vary between lenders, particularly in the way they assess your ability to repay the loan.
Please call us on 1300 889 743 or fill in our free assessment form to speak to a mortgage broker who specialises in SMSF loans.
How will the banks assess my borrowing capacity?
The main hurdle encountered by most SMSF applicants is proving that there is sufficient income in the trust to support the loan.
Typically, the banks will look at the current income of the trust based on its previous two years tax returns and will then assess if that income plus the proposed rental income will be sufficient to service the debt.
Some lenders can also use the income of members or beneficiaries of the SMSF to support the application if a personal guarantee is provided.
You can use our SMSF borrowing power calculator to see how some of our banks would assess your situation.
Are there any restrictions?
There are restrictions on SMSF loans which prevent some transactions from taking place. For example:
- Construction loans may not be available. The SMSF is able to pay for renovations out of its own funds, but can’t use the borrowed additional funds for this purpose.
- Refinances of existing SMSF loans may not be available (one of our lenders now offers refinances).
- Buying a property in your SMSF that you intend to live in (owner occupied business premises are acceptable).
- Selling a residential property to your SMSF, that you or a related party owns (commercial property is acceptable).
- Banks have liquidity requirements when your borrow for your SMSF but some lenders are less strict than others.
You may also wish to speak to your accountant or financial planner to find out if your intended transaction complies with lender rules and government regulations.
How can I get approval?
Compared to home loans and commercial loans, this type of lending is relatively new.
Each bank has come up with their own way of assessing SMSF applications, so if your bank can’t help you then please contact us and our mortgage brokers who specialise in SMSF and limited recourse loans will help you to find a solution.
Cheaper interest rates when lending to the bare trust!
In a typical SMSF borrowing arrangement, the lender lends to the SMSF trustee who doesn’t actually hold legal ownership of the property. This is known as “borrowing money”.
One of our lenders will actually lend to the trustee of the bare trust or holding trust, which means you can qualify for higher LVRs and lower interest rates. This is known as “maintaining a borrowing”.
In order to meet SIS Act compliance requirements, there needs to first be an agreement between the SMSF trustee and the trustee of the bare trust.
You should speak to your accountant when considering entering such an agreement.
In addition to this requirement, the bare trust trustee must be a company or company director.
When assessing the trustee’s capacity to borrow, the lender will use the director’s income or the trustee company’s latest profit and loss statement including any rental income.
Please call us on 1300 889 743 or complete our free assessment form to speak with one of our mortgage brokers about the benefits of maintaining a borrowing versus borrowing money for your SMSF.
Why use a mortgage broker?
The residential investment and commercial loans offered by the major banks are not as competitive as those offered by smaller banks and building societies.
For a standard home loan there is only a small difference between different lenders. However, for an SMSF loan there are big differences in fees and interest rates.
In particular, many major banks process loans for SMSFs via their commercial or business banking department. These parts of the banks have much higher costs than the normal home loan department, and as a result they charge more for their loans.
In addition to this, not all lenders can provide an offset account with your mortgage, which is critically important if you have a lot of cash in your SMSF.
A 100% offset account is a regular cheque account, except that it is linked to your home loan account. The lender only charges you interest on the balance of your home loan minus the balance of your offset account. The benefit of this is that you can pay off the loan much quicker and also save a lot of money in interest.
We know which lenders have offset accounts for SMSF home loans and can help you compare SMSF loans as well. Please call us on 1300 889 743 or fill in our free assessment form and one our expert mortgage brokers will help you get an SMSF loan with a lender that best suits your needs.
What is a Self-Managed Superannuation Fund (SMSF)?
An SMSF is a special type of trust that people can set up to manage their own superannuation.
Like a normal super fund, your employer contributions still get paid into the fund and you can make additional contributions as you see fit.
However, unlike a normal super fund, the trustee (either you or your company) has direct control over the assets that your superannuation is invested in.
Many people also use their SMSF to help plan for their retirement and assist with tax planning.
When is an SMSF allowed to borrow money?
There are laws restricting the use of SMSFs to borrow money, and restricting the recourse of the lender in the event that the trust cannot meet its repayment obligations.
A basic outline of the rules a trust must follow in order to borrow money, is as follows:
- The asset is an asset the SMSF could otherwise legally acquire (if it had the funds).
- The asset is held on trust for the SMSF using a security trust (known as a security custodian).
- The SMSF acquires a beneficial interest in the asset from the outset.
- The SMSF has the right to acquire legal title from the security trustee upon making all loan repayments.
- The lender must only have limited recourse against one particular asset. This means that in the event of a loan default, the lender must not be able to claim any other assets of the fund.
- Each borrowing arrangement can only be for a “single acquirable asset”. In the case of strata title or subdivisions, each title is considered a separate asset.
Why don’t most banks lend to super funds?
The majority of lenders do not lend to super funds to buy investment properties because of the smaller size of the market, the complexity of trust loans and because the lender’s recourse is limited to the asset itself.
What does this mean?
To a lender it is more work, for a higher risk loan with a lower profit.
However not every lender sees it the same way!
Some lenders will even allow discounted residential loans to be used by super funds.
To find out which lenders offer the best features, please contact us. Our mortgage brokers know which lenders have the most competitive SMSF loan packages around.
Which banks have loans for SMSF trusts?
The major banks have not all decided to lend to super funds, leaving many bank customers unable to obtain investment loans for their Self-Managed Super Fund without seeking out a specialist broker.
We know which lenders can help with your residential or commercial property investment. Please enquire online or contact us on 1300 889 743 to find out how much you can borrow.
When should I apply for an SMSF loan?
We recommend that you apply for the loan at least two weeks before you begin looking for a property.
This process can be expedited if required, however it is always best to allow additional time to avoid disappointment.
Thinking of applying? Fill in our free assessment form or call us today on 1300 889 743 to speak to one of our expert mortgage brokers who specialises in SMSF trust loans.
How long does it take to get an approval?
Borrowing in an SMSF is far more complicated than applying for a normal home loan!
We find that many of our customers take around a week to collate the documents required to apply for the loan, and then it often takes banks another week to assess and accept the pre-approval application.
How will the loan be structured?
The loan is made out to the trustee of the SMSF in its capacity as trustee with the security custodian as mortgagor.
The lender has limited recourse and if the loan is in default, they have no ability to claim the other assets held by the trust.
Some lenders require guarantees from the members of the superannuation fund, however the guarantee is modified to ensure guarantors do not have recourse to the super trustee in the event that there is a default on payment under the guarantee.
Other lenders do not require personal guarantees from the members of the superannuation fund.
Can I get low interest rates?
It really depends on the lender that you apply with. There are large differences in pricing between the major lenders.
You are likely to pay a significantly higher rate if you only talk to your current bank.
Are there no deposit SMSF loans?
It’s a common misconception that you don’t need a deposit to buy a property in your SMSF.
In actual fact you need a minimum of 24% to 25% of the purchase price to cover your 20% deposit and the other costs such as stamp duty. So why do people say that you don’t need a deposit?
The reason is that your existing superannuation can be your deposit. If you have $100,000 in a managed super fund then you can move this to your SMSF and use it as a deposit to buy a property.
Effectively this means that you may not need to save a deposit in your own name like you would for a traditional investment property purchased outside of your super fund.
Do banks look at the beneficiaries?
For new trusts, some lenders will look at the current income of the trust beneficiaries, the previous super contributions they have been making and their new proposed super contributions.
Their loan can be assessed based on their proposed super contributions if they are within the maximum amounts allowed by the ATO and if they can afford these contributions without hardship.
Lenders know the maximum amounts that you are allowed to make as concessional and non-concessional contributions. These limits can change from year to year.
They will decline loan applications that require contributions in excess of these amounts to prove your SMSF‘s ability to repay the debt.
Will the lender accept my super contributions?
If you are close to the retirement age then the lender may not accept your super contributions in their assessment.
If you no longer have a personal income then of course your super contributions will cease.
In this case, the lender may shorten the loan term or reduce the amount of the loan so that the rent income can cover the repayments.
Will the lender accept other forms of income?
Some lenders are more flexible than others, however there are many banks that will not accept income from shares or interest from the current assets of your trust.
If you are selling these assets to provide the deposit to purchase the property then that income cannot be included in the lender’s assessment.
Want to know if the banks will include your income? Speak to us on 1300 889 743 or fill in our free assessment form today and one of our expert mortgage brokers will get back to you.
Can my SMSF buy a property from my personal portfolio?
Your SMSF can buy a commercial property that you already own, however your fund cannot buy a residential property that is owned by you or a related party.
The penalties for getting it wrong could include paying a large percentage of your superannuation fund balance as penalty tax – so it is best to get good advice from the outset.
We recommend that you discuss any potential tax implications of transferring a property from your name into your SMSF with an accountant that specialises in Self-Managed Superannuation Funds.
How do I apply for an SMSF loan?
There are few mortgage brokers or bank managers that understand Self-Managed Super Funds (SMSF), and even fewer who are experts in lending to them.
By using our services, you can get the best advice for your SMSF trust loan.
Please call us on 1300 889 743 or fill in our free assessment form to discuss your loan with one of our mortgage brokers.
What to consider before setting up an SMSF
Setting up an SMSF is a big decision requiring lots of thought and thorough research.
Determine whether it meets your needs by assessing the following considerations:
- Will it save you money?: there are many fees involved in managing an SMSF. Consider how much you actually have as retirement savings and whether it is financially sound to set up an SMSF. You can start by comparing the accounting and audit fees costs of an SMSF against the 1-2% charged by a standard retail super fund.
- What benefits will you lose?: you are likely to have many benefits and options included in an employer provided super fund. However, to receive the same benefits under an SMSF, you would have to organise these yourself. The most common benefit is cheaper life insurance. However you may find that many public super funds can transfer the insurance at the same rate into your own name.
- Can you invest your super funds effectively?: when you are part of an employer provided super fund, the money is managed and invested by professionals with specialised knowledge. If you cannot make good investment decisions, you will not be maximising the returns on your funds or managing your wealth effectively. Generally, SMSFs are best suited to those who have particular personal investment experience.
- Losing funds: if you were to lose any money there would be no way to reclaim those funds. This is unlike the compensation available under other super funds.
- Are you well informed and have the time to manage the SMSF?: you need to know about all the legislation, regulation and taxation requirements you are expected to meet. It is also important to have knowledge of the investment market. If you believe that you could not effectively manage your super fund, then you need to speak to experts and seek specialised advice. Accountants with specialist SMSF knowledge can assist you, but the responsibility ultimately falls upon the trustee.
Setting up an SMSF
There are several components involved in setting up a Self-Managed Super Fund. Every SMSF needs to be made in accordance with regulation and applicable legislation.
As with any new entity, there are also Australian Taxation Office (ATO) reporting requirements.
If you are thinking of setting up an SMSF to manage your superannuation savings, you need to:
- Choose a name for the fund and speak to your accountant or adviser to help you set up the correct trustee and trust structure to fit your needs.
- Prepare an investment strategy.
- Apply for the trust to be regulated, obtain your Tax File Number and Australian Business Number (ABN). These three applications can be made at the same time.
- Establish a bank account. Many banks will require you to provide them with certified copies of the signed trust deed, tax file number certificate and business number certificate before you open an account.
- Contact your old super fund to rollover you current member balance. This can take from 2 weeks to 2 months depending on the fund. You will most likely be required to forward them certified copies of the signed trust deed and a letter from the trustee.
When you set up an SMSF, you must manage it according to the rules set out in your trust deed.
Since the purpose of an SMSF is to provide retirement benefits to members, the rules of the fund must reflect this.
The following is a list of important facets of an SMSF:
- Manage the fund’s investments: all investments should be managed for the benefit of the fund members and personal financial affairs or interests should not be incorporated in any way. These must be kept separate. The ATO has strict rules concerning asset ownership with all assets required to be held in the full legal name of the SMSF.
- Contributions from fund members: these can be accepted, but there are some restrictions in place, depending on the age of the member and their contribution caps. These caps change every year and there are penalties for over-contributing, so it is best to carefully plan any extra contributions.
- Administration: If you are the trustee of the super fund, you will have to ensure that you meet all reporting requirements and maintain records of the fund’s undertakings. An accountant can assist you with the annual income tax, reports and audit.
- Access to the fund: members will be eligible to receive super funds once they reach the ‘preservation age’, retire or meet any other conditions of release. Generally, it is very hard to touch your super before reaching the required age unless you are experiencing severe financial hardship.
- Tax: super income is generally taxed at a rate of 15%. However higher rates may apply if you receive “special income” from investments in entities related to you or if you receive a notice of non-compliance for breaching the super fund rules.
Rules relating to Self-Managed Super Funds
There are special rules governing how super funds must be run:
- The fund must always be run with the sole purpose of providing retirement benefits.
- You cannot use an SMSF to gain early and improper access to superannuation.
- SMSFs can now borrow as long as certain requirements have been met.
- The SMSF trustee can either be a company owned by all members or all members as individual trustees.
- An SMSF can have between one to four members.
- The SMSF must always maintain and follow its investment strategy.
- The trustee must ensure that the SMSF complies with the Australian Taxation Office (ATO) regulations and guidelines.
Avoid double stamp duty
Stamp duty will be payable on the initial transfer from the property vendor. What most people don’t know is that with some banks the security custodian structure is different, so the transfer of title upon completion of the loan may also attract additional stamp duty charges!
Some banks require that you use their security custodian (Pty Ltd company), to hold the property on trust for your SMSF.
This means that when you pay off the property, you may have to pay additional stamp duty to transfer legal title to the investment property, from the custodian to the SMSF trustee.
You could end up paying thousands of dollars in tax, simply because you set up your SMSF loan with the wrong bank!
SMSF loans and stamp duty charges are complicated, so please confirm the legal structure of your SMSF loan with your accountant.
Tips for managing an SMSF
Here are a few things to remember when starting an SMSF:
- Make sure that you fulfill all your administrative obligations, including record keeping and taxation.
- Enlist the services of an auditor as required by the ATO.
- Prepare all financial statements and maintain good records.
- Know the law so that you can comply with the ATO and government regulations.
- Never enter into any commercial or financial arrangements that involve your SMSF without first seeking professional advice.
- Do not access your SMSF unless you have met all conditions. It is illegal to prematurely access your super fund and there can be heavy penalties for the fund member and the fund.
Speak to a professional finance advisor
To ensure that you are complying with all of the regulations, speak to a tax agent who can offer you specialist taxation and financial advice.
Make sure you read all information available and access the relevant resources so that you are fully informed.
You are responsible for your SMSF so it is important that you adhere to the ATO rules.
Getting the right advice means that you will have the appropriate structure for your SMSF trust loan, minimising any legal issues.