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In the APRA letter, the authority says that, for the purposes of its capital adequacy standard, APS 112, SMSF loans are "relatively more complex" than standard mortgages.
"As such, SMSF loans may have a different and potentially higher loss profile in comparison to standard loans.”
But SuperShift principal Nic Ellis says most participating parties are already fully aware of LRBA issues.
“It should be very clear that lenders have already categorised these limited recourse loans as non-standard and they have been risk-weighted as the end rate to customer is higher than standard loans by approximately 0.3%-0.5%.”
However, Ellis says it’s important for mortgage brokers to remember those who aren’t fully trained in SMSF’s should use the ‘spot and refer model’ in order to be able to participate compliantly.
“[They should be] referring their clients…to the experts to have suitable advice provided in the first instance under the planner’s or their dealer group’s AFSL. In reality and practice this will lead to better and more profitable business for these brokers who choose to participate in this logical way. Failure from brokers to grasp the extra compliance issues associated with SMSF loans will create extra regulatory compliance from APRA, ATO and ASIC and perhaps even ‘spoil the broth’ for the disadvantage of the bulk of the good guys.”
Ellis says the higher rates charged to consumers with LRBA mean lenders receive more income for these loans, as they must hold more capital to fund them, based on the fact that they’re limited recourse.
“We all do agree with APRA on this point. Lenders have also done their homework in assessing serviceability for these loans to ensure they are responsible by ensuring that the SMSF will not be placed in hardship after the loan is granted, considering the running costs of the structure needed. This is embedded in most/all lenders mechanism of servicing and understood by good SMSF/SuperShift advisors in this area.”
