SMSF home loan borrowing surges in March 2021 quarter

The ATO's latest Self-managed super fund (SMSF) quarterly statistical report for March 2021 shows more than 6,000 new SMSFs were established in the three months to 31 March, with the total number now sitting at just under 600,000. 

Total estimated SMSF assets increased by 3% over the quarter to $787 billion, and while the most common asset types are still listed shares (26%) and cash or deposits (19%), the biggest increase was seen in property. 

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The total value of real residential property held by SMSFs grew by 6.36% ($2.64 billion) to more than $44.1 billion over the quarter, while limited recourse borrowing arrangements (LRBA) - which are often utilised by SMSFs for investing in property - also rose by 6.36% ($3.55 billion) to $59.4 billion.

Such loans limit the recourse of the lender, in that the lender can only repossess the asset (e.g. the investment property) purchased through the loan to recoup the debt should the borrower default. This is unlike the typical home loan, where the lender usually has full recourse to go after other assets too, such as cash in the bank or a stock portfolio.      

Related: What can you invest in with an SMSF? 

The ATO's data shows LRBA use stayed relatively stagnant over 2020 when the pandemic hit, after increasing in value by more than 10 times from $400 million about a decade ago. 

This recent increase is also in line with the Australian Bureau of Statistics' (ABS) most recent household lending data, which not only saw new loan approvals hit a new record high in March, but also recorded a substantial increase in investor lending after a 20-year low seen last year.

Prudential regulator data also shows total superannuation assets increased 3.1% for the quarter and 13.9% over 12 months to a record high of $3.1 trillion.

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The big four banks and many other institutions no longer offer LRBA loans due to their perceived risk and complexity, with the likes of Westpac and Commonwealth Bank ending their involvement in 2019. 

The 2014 financial system inquiry recommended banning LRBAs to “prevent the unnecessary build-up of risk”, with lower-income users generally the most disadvantaged by using these schemes. 

See also: When are SMSFs not worth the cost?

But it appears that hasn't deterred SMSF customers from using these loans.

Lenders still offering SMSF loans at the time of writing include: 

• La Trobe Financial
• Liberty Financial
• Bank of Queensland (BOQ)
• Switzer Home Loans
• Mortgage House
• Freedom Lenders
• Reduce Home Loans
• Rate Chaser Home Loans
• LJ Hooker Home Loans
• Regional Australia Bank

Photo by MayoFi on Unsplash

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