SMSFs offer shelter from the storm
Non-banks are making SMSFs easier than ever, and the secret is out with more lenders joining the game amid good demand for this relatively low-risk, top-performing asset class
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EVEN AS uncertainty continues in the broader economy, self-managed super funds (SMSFs) offer a safe harbour for brokers looking for a growing market.
SMSFs can also offer investors shelter from higher rates, provide a reliable return compared to some other superannuation investment tools, and have a growing cadre of non-banks making it easier for brokers to offer the product.
“We see SMSFs as a growing market. More and more people are checking out other ways to invest their super,” says James Austin, chief financial officer at Firstmac.
The appeal to certain demographics, combined with borrowers' desire to seek out alternative investments in uncertain times, provides a natural tailwind for the market. While SMSF members span a range of age groups, Australian Taxation Office data shows that people in their 30s and 40s are the group most likely to set up a fund.
It isn’t surprising that more non-banks are getting into the SMSF arena given the success many are experiencing.
“Since the big banks left this market, we’ve noticed more non-bank lenders popping up,” says Austin at Brisbane-based lender Firstmac. “They’re offering much better rates and service. Our residential SMSF product has become a big part of our business … we’re bringing competitive SMSF options and prices to a sector that’s been largely ignored.”
It’s a similar story on the other side of the country at Melbourne-based La Trobe Financial.
“Notwithstanding that credit growth has slowed in light of the interest rate hiking cycle, La Trobe Financial has experienced steady demand from experienced investors for property credit. For several years now our SMSF product has been one of our most popular loans,” says senior vice president and chief lending officer Cory Bannister.
This trend may strengthen in the months ahead. “We are hearing that there are a number of investors poised, ready to return to the market once they gain confidence that inflation is under control and returning to target range,” Bannister says.
In the meantime, those looking to refinance an existing SMSF arrangement are also exploring their options.
“There is considerable opportunity for both the purchase of property using an SMSF structure and the refinance of existing SMSF LRBAs,” says Vala. “If a client has an SMSF, [brokers should] ask to review their current arrangements and whether the repayments have significantly increased, as a number of historical SMSF loans were written at higher rates and often over relatively short loan terms.”
Thinktank, too, has seen an increase in applications for SMSF limited recourse borrowing arrangements for purchases and refinances. More Australians are opting to invest their superannuation funds in real estate, partly as a way to help diversify an SMSF’s portfolio and investment strategy.
“From our viewpoint, SMSF LRBAs have demonstrated remarkably low default and arrears rates over more than 10 years, making them a top-performing asset class,” Vala says. “Additionally, numerous SMSFs invested in commercial properties, classified as business real property, have an associated business as a tenant. This arrangement generally serves to further reduce the risk of rental defaults.”
None of this is news to savvy investors, who have been quick to realise that the SMSF options offered by non-banks can cater to their unique needs.
“There are plenty of investors on the ‘offence’, which requires a lender – and broker for that matter – that can provide a tailored lending solution, allowing them to seize opportunities that suit their property investment objectives,” says Bannister. “Non-banks are ideally suited during times like these as often they have more flexibility with regard to debt-to-income ratios, a common barrier facing property investors with multiple properties.”
Bluestone Home Loans is a leading non-bank lender specialising in SMSF and residential home loans. Its team of 270 across Sydney, Auckland and Manila are proud to serve the one in 10 borrowers who are overlooked by banks. Bluestone has helped over 51,000 Australians and 13,000 Kiwis to secure a mortgage and achieve their dreams of homeownership, managing over $11 billion in loans. Most Bluestone loans are broker-led, so Bluestone is dedicated to supporting and nurturing the broker channel with market-leading education, fast approvals and a dedicated broker portal.
Find out more
Thinktank is an independent non-bank financial institution specialising in the provision of commercial-property mortgage finance of up to $4m and residential-property mortgage finance of up to $2m in the Australian self-employed, PAYG and SME sectors. Since 2006, Thinktank has provided over $6.5 billion of commercial, residential and SMSF lending solutions, which have enabled thousands of borrowers to achieve their goals of acquisition, refinancing and equity release. Thinktank offers a range of lending solutions, which include Full Doc, Mid Doc (Alternate Income Verification), Quick Doc and SMSF loans.
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In Partnership with
“More Australians have been taking advantage of exercising more control over their own financial affairs, especially in a time when some superannuation returns may not necessarily be meeting investment expectations,” says Peter Vala, general manager for partnerships and distribution at Thinktank.
James Austin
Firstmac
Industry experts
James Austin has been CFO of Firstmac Limited since 2005. He has a wealth of knowledge in treasury and capital markets, and expertise in debt, equity and derivative markets. Austin managed the acquisition and integration of HSBC’s $2.2 billion residential mortgage portfolio in 2006, oversaw the issuance of more than $30 billion of RMBS, and managed Firstmac through volatile global funding markets. He started his career at KPMG in Brisbane where he attained his ACA qualification at the Institute of Chartered Accountants. He has since worked at CSFB, Abbey National and HSBC. Austin has a Bachelor of Business (Accounting) from the Queensland University of Technology.
Firstmac
James Austin
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Cory Bannister
La Trobe Financial
Richard Chesworth
Bluestone Home Loans
Industry experts
James Austin has been CFO of Firstmac Limited since 2005. He has a wealth of knowledge in treasury and capital markets, and expertise in debt, equity and derivative markets. Austin managed the acquisition and integration of HSBC’s $2.2 billion residential mortgage portfolio in 2006, oversaw the issuance of more than $30 billion of RMBS, and managed Firstmac through volatile global funding markets. He started his career at KPMG in Brisbane where he attained his ACA qualification at the Institute of Chartered Accountants. He has since worked at CSFB, Abbey National and HSBC. Austin has a Bachelor of Business (Accounting) from the Queensland University of Technology.
Firstmac
James Austin
Cory Bannister is senior vice president and chief lending officer at La Trobe Financial. He has a rich understanding of both the loan origination process via the third party channel and the approval and settlement of institutional and retail loans. Bannister’s portfolio management experience extends to the selection and allocation of assets for multiple wholesale mortgage portfolios in excess of $1 billion. He has been responsible for the management, review, risk profiling and audit of wholesale asset pools, and has had conduct of the relationships with substantial wholesale and retail investors, with responsibility for overseeing related reporting.
La Trobe Financial
Cory Bannister
One effect of more lenders entering the market has been competitive pricing.
“What’s equally important for brokers and SMSFs is to align with a lender who will deliver on time and are experts in this specialised area,” says Chesworth. “Bluestone ensures SMSF lending applications are assessed in the same time frame as our residential mortgage applications.”
This is a significant change in approach given the ultra-fast turnaround times of non-banks compared to mainstream lenders. Other non-banks approve SMSF loans at similar speed.
James Austin
Firstmac
Industry experts
“Many non-bank lenders aim to make it easier for brokers to do business with them. Assisting this, they typically utilise a centralised credit process that fundamentally helps to streamline the assessment of complex lending structures”
Peter Vala, Thinktank
One lender that entered this market last year is Bluestone Home Loans, hiring staff with a strong track record in SMSF lending and a mission to make it easier to understand for brokers. Since launch, the Sydney-based non-bank has also seen consistent growth in the area.
“Banks exited the SMSF lending market in 2019, which was made up of $27 billion in borrowings secured by $65 billion in assets. The non-bank sector has met the ongoing demand,” says Bluestone’s head of specialised distribution, Richard Chesworth.
SMSFs offer the added bonus of being able to protect borrowers from the current inflationary environment.
“With an SMSF and its associated liabilities being siloed from a borrower’s general expenses and any liabilities in their own name, cost of living pressures and higher interest rates currently being experienced haven’t impacted SMSFs as much as other borrower types,” says Bannister.
Using an SMSF as an investment vehicle provides something of a buffer against higher rates.
“Despite recent rate rises, the SMSF sector remains robust as investors seek alternative options to step onto the property ladder to fulfil their chosen investment strategies,” says Vala.
James Austin has been CFO of Firstmac Limited since 2005. He has a wealth of knowledge in treasury and capital markets, and expertise in debt, equity and derivative markets. Austin managed the acquisition and integration of HSBC’s $2.2 billion residential mortgage portfolio in 2006, oversaw the issuance of more than $30 billion of RMBS, and managed Firstmac through volatile global funding markets. He started his career at KPMG in Brisbane where he attained his ACA qualification at the Institute of Chartered Accountants. He has since worked at CSFB, Abbey National and HSBC. Austin has a Bachelor of Business (Accounting) from the Queensland University of Technology.
Firstmac
James Austin
Cory Bannister
La Trobe Financial
Cory Bannister is senior vice president and chief lending officer at La Trobe Financial. He has a rich understanding of both the loan origination process via the third party channel and the approval and settlement of institutional and retail loans. Bannister’s portfolio management experience extends to the selection and allocation of assets for multiple wholesale mortgage portfolios in excess of $1 billion. He has been responsible for the management, review, risk profiling and audit of wholesale asset pools, and has had conduct of the relationships with substantial wholesale and retail investors, with responsibility for overseeing related reporting.
La Trobe Financial
Cory Bannister
Cory Bannister
La Trobe Financial
Cory Bannister is senior vice president and chief lending officer at La Trobe Financial. He has a rich understanding of both the loan origination process via the third party channel and the approval and settlement of institutional and retail loans. Bannister’s portfolio management experience extends to the selection and allocation of assets for multiple wholesale mortgage portfolios in excess of $1 billion. He has been responsible for the management, review, risk profiling and audit of wholesale asset pools, and has had conduct of the relationships with substantial wholesale and retail investors, with responsibility for overseeing related reporting.
La Trobe Financial
Cory Bannister
Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending and is responsible for its strategic direction and operating performance across product, credit and settlements sales functions for Australia and New Zealand mortgages, commercial loans, personal loans and direct sales. With over two decades’ experience in financial services, Saoud has worked in numerous areas across legal, company secretary, sales and product management roles with the likes of Aussie Home Loans, GE Capital, HSBC and Norton Rose Fulbright. Saoud is a passionate leader with proven ability to grow businesses and exceed targets through innovative strategy and effective execution.
Pepper Money
Barry Saoud
Peter Vala has extensive experience in residential, commercial and development finance. He specialises in strategic implementation, leads the Thinktank relationship manager team, and works closely with brokers and aggregators.
Thinktank
Peter Vala
John Mohnacheff is Liberty's ebullient and charismatic group sales manager. With over 30 years of insurance, banking and finance experience, he is committed to improving the sales habits and disciplines of the entire group sales team. Before joining Liberty, Mohnacheff held executive roles at Westpac and Bank of Melbourne. He has a Bachelor of Business and a Marketing Master’s from the University of New England, and a Postgraduate Diploma in Organisational Behaviour from the University of NSW.
Liberty
John Mohnacheff
“With an SMSF and its associated liabilities being siloed from a borrower’s general expenses and any liabilities in their own name, cost of living pressures and higher interest rates currently being experienced haven’t impacted SMSFs as much”
Cory Bannister, La Trobe Financial
Making hay while the sun shines
A less risky way to invest in property
Making hay while the sun shines
A less risky way to invest in property
Published 16 Oct 2023
James Austin
Firstmac
Peter Vala
Thinktank
Richard Chesworth, head of specialised distribution at Bluestone, specialised in SMSF leveraging solutions prior to the introduction of limited recourse borrowing arrangements legislation in 2007, through the development and oversight of a number of leading SMSF lending solutions. Chesworth regularly shares his first-hand SMSF leveraging experience with mortgage brokers, accountants and financial planners, as well as some of Australia’s central policy agencies through the past reviews of the LRBA legislation. He completed the SMSF Association’s SMSF Specialist Advisor qualification in 2018.
Bluestone Home Loans
Richard Chesworth
Thinktank general manager for partnerships and distribution Peter Vala has extensive experience in residential, commercial and development finance. He specialises in strategic implementation, leads the Thinktank relationship manager team and works closely with brokers and aggregators.
Thinktank
Peter Vala
Source: ATO’s SMSF Quarterly Statistical Report, June 2023
Most common age of borrowers setting up
an SMSF is 35–44
La Trobe Financial is Australia’s leading alternative asset manager and a proven and trusted investment partner for institutional and retail investors with c. A$17 billion in assets under management. Operating Australia’s largest retail credit fund, La Trobe Financial has the most diversified funding program of all non-bank lenders operating in Australia. Since 1952, La Trobe Financial has been driven to help people realise their potential with specialist financing and investment solutions.
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More clients are realising that there are serious savings to be made.
“We expect to see an increase in refinance activity as SMSFs complete their annual returns and identify the considerable increase in their interest costs,” says Chesworth.
Bluestone is seeing savings in excess of 3% when an SMSF loan is refinanced with the Sydney lender, which can deliver annual interest savings of more than $8,000.
“To put this into perspective, that’s like a fund member having a super guarantee uplift as if they had received a $72,500 pay rise – based on an 11% super guarantee contribution. This also has a compounding effect of boosting retirement savings each year,” says Chesworth.
“Refinancing to a lower rate can place the investment back into a positively geared position … while it’s not always achieved initially, the ideal position to be in within this concessional environment is positively geared, as fund members still have 85% of income post-tax to go towards reducing debt or diversifying investments.”
The cost of living crisis is only adding to the urgency around reducing outgoings.
“We’ve noticed a growing number of people taking a closer look at their financial situation,” says Austin. “Coupled with elevated inflation and only modest income growth, people are feeling the financial pinch and are actively seeking ways to reduce their repayments through refinancing.”
In fact, targeting borrowers who are wanting to refinance is a smart way to break into the SMSF market for a broker looking to diversify, because the refinancing market doesn’t come with the same time pressure as purchasing.
“Refinancing an SMSF is a win-win situation. Brokers will only recommend refinancing if it offers customers a better deal and it provides an additional avenue for your business to thrive,” Austin says.
SMSFs are also attractive to the self-employed.
At Thinktank, Vala says, “With no liquidity requirements or minimum net asset conditions, we have been attracting increasing numbers of self-employed and professional applicants who are also able to take advantage of our ability to use projected concessional and non-concessional contributions for servicing, especially when the fund is newly established or borrowing to higher LVRs or loan amounts.”
All this activity is increasing overall values of assets held by SMSFs.
A broad range of potential customers
SMSFs have also moved from being a niche product to a slightly more garden-variety financial tool as more potential borrowers actively explore their options and non-banks ramp up their education in the area.
“Our application process is simple, with a clear policy and minimal supporting documents required,” says Austin.
Firstmac also has no application fee, no annual or ongoing fees, no settlement fee and no legal fees for refinancing.
“We handle all the legal components internally, ensuring end-to-end control and providing [brokers] with an easy-to-follow checklist – it truly is SMSF made simple.”
Opportunities to learn about SMSFs are not lacking. Most non-banks provide support and training, from workshopping all the way to settlement, with experts available for informal conversations and to offer the latest industry insights and updates. These tools are key to helping brokers understand how SMSFs are structured and build confidence around communicating with customers.
“Don’t be discouraged by the perceived complexity of SMSFs,” Austin says. “Once the correct structure is in place and you’ve received the necessary training from the lender, SMSFs can be relatively straightforward. Once you’re well versed in this market segment, it can even become easier than a standard residential transaction.”
The first step is often to simply get in touch with a BDM at a non-bank.
“We’ve found a direct correlation between an increase in BDM and broker meetings and the likelihood of loan approvals that follow,” Bannister says. “With SMSF lending perhaps misunderstood by some brokers, speaking with our sales team, who are all experts in SMSF lending, is a sure-fire way to increase volumes in this segment.”
SMSFs have a reputation for being tricky, perhaps as a result of the stringent rules around the need for guidance on tax, legal and financial planning matters.
While a careful and well-informed approach is crucial for a broker looking to get into the area, non-banks' expansion into SMSFs has made them much easier to navigate than when mainstream banks were dominant a few years ago.
“Many non-bank lenders aim to make it easier for brokers to do business with them,” says Vala. “Assisting this, they typically utilise a centralised credit process that fundamentally helps to streamline the assessment of complex lending structures and provide a consistent approach to credit decisions.”
At La Trobe Financial, for example, there are no additional accreditation requirements for a broker wanting to offer SMSFs if the broker has already partnered with a major aggregator.
“Whilst there are some additional supporting documentation requirements – for example, SMSF establishment and bare trust deeds – our application form and submission process remains unchanged for SMSF lending,” says Bannister.
Non-banks make SMSFs easier
Firstmac Limited is an independently owned Australian financial services provider with more than 40 years’ experience in home and investment loans. We have grown from a small family business to become Australia’s leading non-bank lender. Over time we have provided 130,000 home loans, and we currently manage $16 billion in mortgages and $300 million in cash investments. Our headquarters is in Brisbane, Australia. We are dedicated to bringing simple, affordable, competitive financial products to market, underpinned by a lengthy track record of success and a pedigree in prime residential home loans. Firstmac is a premier sponsor of the Brisbane Broncos.
Find out more
Pepper Money is focused on countering the image that commercial is a tricky area. “We are laser focused on developing broker confidence working in commercial lending,” says Saoud. “We realise the way to achieve this is to make commercial lending as accessible as possible, which is why we’re investing in support, education and tools to make the product easy for brokers and their clients.”
The perception of commercial as difficult to understand is slowly changing as a result. “As more and more mortgage brokers turn to commercial lending, word is spreading that it’s not as difficult to do as some brokers think. In fact, it’s as simple as doing a home loan – or even simpler,” he says.
“Essentially, all brokers are doing is moving money, and all that changes is the security. If a mortgage broker could gather the information for a home loan from a self-employed customer, they would find commercial lending not that different.”
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Saoud has come across quite a lot of brokers who deal with commercial exclusively and think the residential market looks time-consuming and complicated.
“It goes to show that the only obstacle is flawed perceptions, but when we unlock a new level of confidence with commercial lending, we open up new opportunities for brokers,” he says. “It’s about helping the broker realise what they are capable of doing.”
Education can be as informal as a chat with a non-bank BDM. “We do sessions on real-life case studies, and even a simple ‘coffee with credit’ – having a coffee with our credit managers and talking about how they look at a transaction,” Saoud says.
Education is key to success
James Austin, Firstmac
“Our residential SMSF product has become a big part of our business ... we’re bringing competitive SMSF options and prices to a sector that’s been largely ignored”
Thinktank offers a range of face-to-face education sessions designed to empower brokers to branch into new areas such as commercial. Relationship managers (RMs) support brokers with transactions from inception to settlement.
“It’s why there are no minimum volume or experience requirements to commercial loans with Thinktank, as our RMs are there alongside the broker every step of the way,” says Vala.
Many alternative lenders host regular education workshops and seminars to upskill brokers on commercial lending. “This includes how to spot opportunities, along with helping implement strategies brokers can implement to support their client base – which was the genesis of the Commercial Market Update live webinar held on March 24 in collaboration with Lumi, Accendo Financial and VeloxCapital,” Porch says.
Developing links to the commercial sector through networking is also a good strategy.
“We are proud that most of our work comes from word of mouth, so keeping the conversation going with our network is key,” Koutsoumidis says. “We help our brokers walk through the transaction and try to deal with obstacles before they crystallise.”
As major banks continue to offer less-flexible products in a tougher economy, demand for knowledge and service in the non-bank commercial lending arena is only likely to grow.
“Who better to help navigate that transition than brokers?” Bannister asks. “This is where we see significant opportunity in the years ahead.”
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Richard Chesworth
Bluestone Home Loans
Peter Vala
Thinktank
Richard Chesworth, head of specialised distribution at Bluestone, specialised in SMSF leveraging solutions prior to the introduction of limited recourse borrowing arrangements legislation in 2007, through the development and oversight of a number of leading SMSF lending solutions. Chesworth regularly shares his first-hand SMSF leveraging experience with mortgage brokers, accountants and financial planners, as well as some of Australia’s central policy agencies through the past reviews of the LRBA legislation. He completed the SMSF Association’s SMSF Specialist Advisor qualification in 2018.
Bluestone Home Loans
Richard Chesworth
Thinktank general manager for partnerships and distribution Peter Vala has extensive experience in residential, commercial and development finance. He specialises in strategic implementation, leads the Thinktank relationship manager team and works closely with brokers and aggregators.
Thinktank
Peter Vala
Thinktank is an independent non-bank financial institution specialising in the provision of commercial-property mortgage finance of up to $4m and residential-property mortgage finance of up to $2m in the Australian self-employed, PAYG and SME sectors. Since 2006, Thinktank has provided over $6.5bn worth of commercial, residential and SMSF lending solutions, which have enabled thousands of borrowers to achieve their goals of acquisition, refinancing and equity release. Thinktank offers a range of lending solutions, including Full Doc, Mid Doc (Alternate Income Verification), Quick Doc and SMSF loans.
Find out more
Richard Chesworth
Bluestone Home Loans
Peter Vala
Thinktank
Richard Chesworth, head of specialised distribution at Bluestone, specialised in SMSF leveraging solutions prior to the introduction of limited recourse borrowing arrangements legislation in 2007, through the development and oversight of a number of leading SMSF lending solutions. Chesworth regularly shares his first-hand SMSF leveraging experience with mortgage brokers, accountants and financial planners, as well as some of Australia’s central policy agencies through the past reviews of the LRBA legislation. He completed the SMSF Association’s SMSF Specialist Advisor qualification in 2018.
Bluestone Home Loans
Richard Chesworth
Thinktank general manager for partnerships and distribution Peter Vala has extensive experience in residential, commercial and development finance. He specialises in strategic implementation, leads the Thinktank relationship manager team and works closely with brokers and aggregators.
Thinktank
Peter Vala
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Proportion of members of SMSFs established in June 2023 quarter, by age range and gender
Male,
all ages
54.2%
1.3% <25
32.5%
35-44
8.2%
25-34
17.9%
45-49
16.5%
50-54
11.3%
55-59
7.1%
60-64
3.0%
65-69
1.8%
70-74
0.3%
75-84
0.1%
85+
Female, all ages
45.8%
1.4% <25
9.5%
25-34
34.8%
35-44
16.8%
45-49
15.8%
50-54
11.0%
55-59
5.8%
60-64
3.0%
65-69
1.2%
70-74
0.4%
75-84
0.2%
85+
Richard Chesworth,
Bluestone Home Loans
“We expect to see an increase in refinance activity as SMSFs complete their annual returns and identify the considerable increase in their interest costs”
Asset values per member and SMSF
GROWTH in AVERAGE and MEDIAN SMSF ASSETS, FY2018-22
2017–18
2018–19
Average assets per member
$652,614
$681,807
$678,876
$788,970
2019-20
$780,254
2020-21
2021-22
$378,370
2017-18
$396,941
2018-19
2019-20
2020-21
2021-22
$395,189
$455,512
$467,187
MEDIAN ASSETS per member
$1,476,484
$1,450,642
$1,272,922
$1,280,057
$1,226,932
2017–18
2018–19
2019-20
2020-21
2021-22
Average assets per SMSF
$826,299
$808,832
$701,818
$705,099
$672,037
2017–18
2018–19
2019-20
2020-21
2021-22
Median assets per SMSF
Source: ATO’s SMSF Quarterly Statistical Report, June 2023
“Our residential SMSF product has become a big part of our business ... we’re bringing competitive SMSF options and prices to a sector that’s been largely ignored”
James Austin, Firstmac