After the LRBA ban – whither SMSF borrowing?
Beyond the ban itself, there is the misinformation lenders had to correct, the loans going unreviewed and the confusion over what counts as business real property
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RICHARD CHESWORTH, Bluestone Home Loans’ head of specialised distribution, was eating breakfast when he saw the headline about the Greens and limited recourse borrowing arrangements (LRBAs). His first reaction was boredom.
“I thought, here’s this old chestnut again. But as I’m reading it, I’m thinking, actually, this is pretty concerning,” he says.
The more he read, the more worried he became. Chesworth had seen proposed bans on SMSF residential lending fail twice before – in 2014 after the Murray Financial System Inquiry and from 2017–19 when Labor adopted it as a campaign promise. The Council of Financial Regulators reviewed the same risk twice more, in 2019 and 2022, and both times concluded there was no systemic threat to the super system.
“I think SMSF lending has always been under the spotlight for one reason or other ... It’s been on the agenda for some time … as far back as the Murray Inquiry in 2014,” Chesworth says. Like the boy who cried wolf too many times, a false sense of security heightened the shock when the wolf actually showed up.
“[This time], it took everyone by surprise … it was literally overnight,” he says. By late morning, Chesworth was on the phone to the SMSF Association asking, in effect, what had just happened.
That choke-on-your-toast moment has now passed, and the ban on new LRBAs for residential property within SMSFs, along with changes to negative gearing and the capital gains tax (CGT) discount on investment properties, has become one of the year’s more repeated finance stories. What has had far less airing is what lenders actually did in the weeks that followed, which parts of the market got the detail wrong and which loans sitting quietly on the books now need a second look.
Misinformation, not the ban itself, did most of the damage
Bluestone’s own policy changes turned out to be minor. The only addition was a requirement that the contract of sale be executed by the bare trustee before 10 August – everything else stayed as it was.
What worried Chesworth more was what other lenders, and the broader market, seemed to be getting wrong. While it’s always best practice, some lenders began insisting on evidence that a deposit had been paid directly from the SMSF, a condition Chesworth says was never actually part of the government’s guidance.
“There was a lot of misinformation out there,” Chesworth says. In the weeks after the announcement, Bluestone pushed guidance to brokers on the mechanics that actually mattered: making sure a contract was signed in the bare trustee’s name rather than the fund’s, avoiding ‘and/or nominee’ clauses common in Victorian and South Australian contracts, ensuring that the contract of sale reflected a single acquirable asset and checking that older matters due to settle after 10 August also met the requirements. There was too much focus on what was to be signed and not enough on what has been executed over recent months.
Confusion also spread about timing. Some in the market assumed formal lender approval had to be locked in before the deadline. In fact, only the contract of sale needed to be signed, since lender approvals rarely hold for more than 60 or 90 days regardless.
Williams argues the industry’s preferred outcome was never an outright ban in the first place. “We continue to believe a more targeted approach would strike a better balance than a blanket restriction. At a minimum, there’s a strong case for allowing SMSFs to continue borrowing for newly constructed homes,” she says. “The policy was introduced quickly and without the level of consultation we would normally expect for such a significant change,” Williams says.
Even so, brokers need to play the hand they have been dealt for now. Their immediate task has little to do with predicting how reform might unfold and everything to do with the fund sitting quietly in a client’s file, the one nobody has looked at since it settled.
If anything, the legislative shock serves as a reminder to brokers not to forget about SMSFs. The task of any broker opening a new relationship with a business owner has always been to ask early, and directly, whether anyone has checked their super fund’s lending terms recently.
A lot of the time, no one has thought about that for years.
Pepper Money has built a specific offer around this. “Our like-for-like refinance solution provides trustees with a practical pathway to review and optimise existing SMSF lending arrangements while remaining within the grandfathering provisions,” she says, adding that brokers with off-the-plan clients need to establish the arrangement’s history early, particularly where contracts were signed before 10 August but settlement falls after it.
Chesworth’s frustration is that this back book rarely gets touched at all. “Your SMSF loan, unlike a home loan or an investment loan, doesn’t get reviewed. Rates are going up, so I’m going to refinance my home loan, but that SMSF loan sits there, and everyone forgets it,” he says.
His theory for why is simple. “They don’t think about it because it’s not hitting their hip pocket, it’s the super fund,” he says, urging brokers to ask new accounting and business clients directly whether anyone has reviewed their fund’s lending terms lately.
One technical trap sits inside the refinancing decision, and Chesworth says it is little understood outside specialist circles. Loans settled before July 2018 sit outside the calculation of a member’s total superannuation balance, so long as a refinance replaces the loan dollar for dollar. Capitalise fees or increase the balance in the process, and that protection disappears, pulling the loan into total super balance calculations it had previously avoided.
“It does not happen to everyone, but some customers may get caught out, so they should seek advice on it,” Chesworth says, adding that extending a loan’s term back out to 30 years on refinance is not automatically a bad outcome, since a fund that is only just servicing its debt can be left without the liquidity to cover an unexpected repair bill or, eventually, a pension payment. Extending the term may place the transaction into a positively geared position and provide the trustee the flexibility of reducing debt or further diversifying the SMSF.
Where the real education gap sits Many lenders see brokers’ knowledge of what counts as business real property as a weak point.
“One of the most important areas for broker education is developing a stronger understanding of what qualifies as business real property. There remains significant opportunity to build knowledge around the types of commercial property that can be acquired by an SMSF and leased to a related party under the BRP rules,” Williams says.
She adds a point that brokers regularly get wrong in conversation with clients. “There is also a need for greater awareness that SMSFs can still invest in residential property. The change relates to the ability to establish new limited recourse borrowing arrangements, not to SMSF property investment more broadly,” she says.
Pepper Money is a leading non-bank lender founded on a mission to help people succeed. For over 25 years, Pepper Money has helped over half a million customers with a wide range of really helpful loan options, including home loans, car loans, novated leases, personal loans, asset finance, commercial real estate and SMSF residential loans. Operating across Australia and New Zealand, Pepper Money works through trusted broker partners, white label solutions and direct channels – always guided by the question: “How can we be more helpful?”
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For one non-bank lender, the first task after the announcement had nothing to do with paperwork.
“Whenever significant regulatory change occurs, uncertainty can create as much disruption as the change itself, so our initial focus was ensuring brokers understood what had changed, what had not changed and what it meant for clients currently considering or progressing an SMSF property strategy,” says Siobhan Williams, head of mortgages – retail broker at Pepper Money.
Product settings, in her account, were the easy part. “The hardest aspect to adjust quickly is often managing uncertainty around transitional arrangements and interpretation of the rules,” Williams says.
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Richard Chesworth
Bluestone Home Loans
Industry experts
Siobhan Williams is an experienced professional in the finance industry with a passion for helping Australians to succeed. She is head of mortgages – retail broker at non-bank lender Pepper Money, leading a talented sales team who partners with brokers to provide real life solutions for their clients. With over 20 years of experience in financial services, she has seen a vast array of borrower success stories. From simple residential home loans to commercial lending and complex deal structures, Williams and her team are dedicated to finding a ‘yes’ often when other lenders have said no.
Pepper Money
Siobhan Williams
Richard Chesworth is Bluestone’s head of specialised distribution and brings more than 20 years of experience in commercial and SMSF lending strategies, giving brokers practical guidance to help navigate complex client needs. He works closely with advisers, brokers and industry partners to structure lending solutions that balance flexibility and compliance with clear, straightforward execution.
Bluestone Home Loans
Richard Chesworth
With the focus now shifting to commercial lending, businesses may be better able to utilise SMSFs via trustees buying the premises that their business operates from. “Tenure of my business premises means I know where it is, I know it’s going to be there, and it suits my needs. Then the rent from that, which is required to be on market terms, is also going to my super rather than paying someone else,” says Chesworth.
The loan everyone forgets about
One clear area of opportunity for brokers sits with loans that already exist, and lenders are actively pushing refinancing of that back book.
“Existing grandfathered residential SMSF loans can continue to be refinanced under the legislation. This creates a valuable opportunity for trustees to review their current lending arrangements and explore ways to improve cash flow within their fund,” Williams says.
Chesworth is direct about who should not be driving the conversation around any opportunities in commercial.
“Brokers shouldn’t be leading the conversation,” he says, arguing that some of the industry’s own past behaviour, from property marketing spruiking super-funded negative gearing to overnight social media experts, played a part in the political pressure that led to the ban in the first place.
“It’s like Chinese cars coming to Australia. There’s suddenly a no-name brand and then they grow into the market. BYD [was largely unknown] five years ago … now it’s one of the biggest-selling cars in Australia. That’s like SMSF lending,” he says.
But within the overall category, the use of LRBAs is hardly major. Chesworth cites figures from the last full income-year data showing only around 11.3% of SMSFs run an LRBA at all, with loans secured against roughly 6.7% of total SMSF assets.
Chesworth draws from cases he expects auditors to start chasing. A mixed-use property, combining commercial and residential space on one title, cannot be financed under the new rules at all. Display homes create a more subtle trap: a builder leasing a display home back on commercial terms qualifies as business real property today, but the same property rented out as a residential home once that lease ends does not, even though nothing about the physical asset has changed.
“The next thing you know, in three years’ time, that lease is finished and I’m going to be able to rent it out as a residential property,” he says, adding that the Tax Office has been explicit that a fund cannot acquire a property as business real property and later convert its use to residential.
Shared communal living arrangements, where several rooms in a single dwelling are leased separately, trip the same wire even when the original loan was structured as commercial. “It comes down to the scale of your own business rather than the property,” he says.
Chesworth’s own view of where things go from here is less about the rules themselves and more about who is in the room when a loan gets arranged. “It’s about making sure that, if we’re looking at business real property, we’re providing the right credit support and advice, and linking with the accountant, the planner and the solicitor so the customer’s needs are met, rather than simply distributing more property,” he says.
“I think SMSF lending has always been under the spotlight for one reason or other ... It’s been on the agenda for some time … as far back as the Murray Inquiry in 2014”
RICHARD CHESWORTH, BLUESTONE HOME LOANS
Published 19 Oct 2026
Siobhan Williams
Pepper Money
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Where the appetite for leverage goes next With new SMSF residential borrowing gone, the obvious question for brokers is where trustee demand redirects. SMSF borrowing for commercial property is certainly getting more attention, though it is more of a shift in emphasis rather than a straight substitution.
“Commercial property remains an important opportunity, particularly for small-business owners who want their SMSF to purchase the premises where their business operates,” says Williams. “It can be an effective long-term strategy because the property supports the business today while also becoming an asset within the owner’s retirement portfolio.”
She is quick to add a caveat. “Commercial property is not a direct replacement for residential property. It comes with different considerations around servicing, valuations, tenants, lease arrangements and cash flow,” she says, noting it is too early to say how much of the displaced residential demand will actually land in commercial assets.
Equifax reported mortgage enquiries down 12.5% year-on-year in the two months following the May budget’s tax announcements and the accompanying RBA rate rises, evidence of just how much churn the reform package has already produced across the wider lending market.
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YoY
+3.7%
A cooling effect on mortgage borrowing demand
Mar/Apr 2026
YoY
-12.5%
May/Jun 2026
Source: Equifax Consumer Credit Analysis, Q2 2026
Source: ATO SMSF Statistical Report, Jun 2026
$1,068.7bn
$77.3bn
7.2%
633,292
Total SMSF assets
Assets held in LRBAs
LRBA share of total SMSF assets
Total number of SMSFs
SMSF BORROWING BEFORE THE RESIDENTIAL BAN
$1,107.2bn
$83.8bn
7.6%
680,301
Jun 2026
Jun 2025
Siobhan Williams, Pepper Money
“Commercial property remains an important opportunity, particularly for small-business owners who want their SMSF to purchase the premises where their business operates”