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May 2019

The future is bright for SMSF lending

With the Liberal-National Coalition retaining power following the recent Federal election, the future of SMSF lending looks safe in the immediate term. Whilst the opposition Labor party had announced their intention to prohibit Limited Recourse Borrowing Arrangements (LRBAs), the mechanism permitting SMSF loans, the coalition had announced no such intention.

This has been most pleasing for the many “property loving” Australians who want to invest part of their retirement fund in an asset class they know, like and trust.

At La Trobe Financial, we maintain a strong conviction in this product based on its superior performance and the need to provide assistance to what has become an underserved market following the exit of major banks from this space.

Our SMSF loan products offer the following unique features:

It is worth noting that our experience to date with this product has been extremely positive, in that it performs incredibly well and has a much lower prepayment rate, meaning these clients offer brokers a steady and reliable income stream over the long term.

With rates starting at 5.99% p.a. we are seeing strong demand for this flexible investment product and invite you to contact us today to learn more about how this product can help your clients.

Below are some common FAQs relating to this product to assist brokers:

  1. Why are many of the major lenders withdrawing from SMSF lending? Is it too risky? Do you expect other lenders to follow suit?

    We believe that the banks have exited this segment for two primary reasons:

    1. they are looking to streamline their product range and concentrate more on the simpler home loan products where processing automation is key. SMSF loan products are more complex in structure and more difficult to fit into their automated credit model – they require the manual underwriting that non-banks do so well; and
    2. we believe that the banks are also required to hold higher capital requirements for these types of loans compared to a standard home loan for individuals so they receive a better return on capital with standard home loans.

    From La Trobe Financial’s perspective our SMSF portfolio has demonstrated strong performance with these high quality ‘super prime’ borrowers, who are saving and investing for long term retirement purposes, proving to be a low risk contrary to some press reporting.

  2. What should brokers, who work with SMSF borrowers, do now, or what should they know about this?

    Within the current finance market for SMSF loans, brokers who have always relied on the banks for their lending needs will now have to consider looking at non-banks in the market to meet their customers’ needs. La Trobe Financial has one of Australia’s broadest product ranges and for SMSF loans can lend up to an LVR of 80% for residential type properties and up to 70% for commercial type properties. Our product specifications and processes are simple for brokers to understand and our Credit Team are well experienced in these type of loans. Our team is available, and can be contacted directly 13 80 10 to assist finance brokers in the process.

  3. What does the trend for SMSFs look like over the next five years?

    Looking at growth in the number of SMSFs, it is on an upward trajectory, growing on average 5% year on year (over 5 years to 2017), from 473,000 SMSFs to 597,000.

    With a notable increase in younger entrants, particularly in the 35-50 age bracket, and a gender shift in the SMSF landscape, combined with Australian’s penchant for DIY, we expect the numbers will continue to rise but at a lower annual rate than previously.

  4. In terms of the residential and commercial SMSF products on offer from La Trobe Financial, what are the pros and cons that brokers need to outline to their clients?

    Most borrower clients may have a SMSF in place already, unless they are coming to a broker with advice from an advisor and are in the process of establishing an SMSF. Clients should not be encouraged to establish SMSFs unless they receive independent advice from an appropriate advisor first.

    An example as to when it may be appropriate to recommend that your client seek advice about setting up a SMSF is where they are self-employed and currently leasing their place of business. If they hold adequate funds in their superannuation fund to allow them to borrow funds to purchase a business premises through an SMSF, it might make commercial sense for them to purchase their business premises, as they can use cash flows from their business to pay their mortgage, as opposed to paying someone else by way of rent. It is a discussion your client might wish to have with their financial advisor.

About La Trobe Financial

With A$9 billion of Assets Under Management (AUM), La Trobe Financial is Australia’s premium non-bank specialising in credit and wealth management. La Trobe Financial provide funding and investment solutions to a diverse range of 150,000 customers and have done so since 1952. 80% owned by Blackstone, the world’s largest alternative asset manager, with over US$545 billion of AUM worldwide. We are a proven and trusted investment partner for institutional and retail investors alike, operating Australia largest retail Credit Fund ($4bn AUM and 40,000 retail investors). We have over 66 years’ experience, managing investment mandates in excess of $22.76 billion since commencement.

La Trobe Financial has been a leading innovator in the non-bank sector for many years including, pioneering “Lite Doc®” lending in Australia in 1990, creating the first private Reverse Mortgage (Seniors Loan™) in 2003, launching the first hybrid wealth management-loan product P2C® (Parent-to-Child) to assist first home buyers in 2013, introducing a unique to market Aged Care finance solution in 2015, and being one of the first lenders to introduce a fully digital KYC and AML checking of borrower applicants for brokers in 2017.

La Trobe Financial Services Pty Ltd ACN 006 479 527 Australian Credit Licence 392385. La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence 222213 Australian Credit Licence 222213 is the issuer and manager of the La Trobe Australian Credit Fund ARSN 088 178 321. It is important for you to consider the Product Disclosure Statement for the Credit Fund in deciding whether to invest, or to continue to invest, in the Credit Fund. You can read the PDS on our website, or ask for a copy by phoning us on 13 80 10.

This publication does not constitute financial advice and should not be relied upon as such. It is intended only to provide a summary and a general overview on matters of interest and it is not intended to be comprehensive. You should seek your own financial or other professional advice before acting or relying on any of the content. Copyright 2019 La Trobe Financial Services Pty Ltd ACN 006 479 527. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial.

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