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According to John Mohnacheff, group sales manager at Liberty, more and more people are exploring managing their own super fund. At the same time, it’s common for people to want more control over their investment decisions.
As such, more people are discovering they are able to use their SMSF and secure a loan to purchase investment property.
Brokers may be put off by the complexity of an SMSF, but Mohnacheff wants to make it clear that the broker has nothing to do with the establishment of the fund itself. The broker is simply acting as a facilitator to help secure the loan.
Just like a typical home loan, an SMSF loan requires a deposit. Different lenders will have different criteria around what level of deposit the super fund needs to provide. Liberty’s SuperCredit loan lets you borrow up to 80% of the value of the residential investment property. At a minimum, the super fund therefore needs sufficient funds to cover the deposit as well as any purchase costs.
The lender assessing the loan will also want to understand the proposed rental income as well as review pay slips or tax returns of the related parties. This is to ensure the SMSF has sufficient income to meet future loan repayments.
"It might sound complicated, but it's not," said Mohnacheff.
"Mortgage brokers do not under any circumstances get involved in advice, or in the establishment of the SMSF. That’s the trustee’s responsibility. But what is wonderful is that underlying the whole deal is an investment loan, which brokers understand well. The loan has a few little establishment variations but otherwise there isn’t a lot of difference.
While it may not be complicated, Mohnacheff reminds brokers there can be a lot of processes to follow, which must be adhered to.
He added, "There are different regulations around the administration of the loan. Every lender has very strict processes on how it must run. There’s no ifs, buts or maybes. It’s set in concrete."
"Just talk to your BDM who will know the different processes well and be able to guide you.
For brokers who do want to diversify, Mohnacheff said SMSF lending is a great opportunity which provides a lot of benefits.
He said, "It’s about identifying or making SMSF lending part of your set of solutions. If a broker knows a customer is looking to take on an investment property and can see they have a SMSF, they can ask if they have spoken to their financial adviser or planner.
"For a broker they should be able to say yes I can help. So, it’s identifying those opportunities.
"Also, when you are a broker looking for valuable referrals, most accountants will be really involved in setting up and managing SMSF’s for their clients. If you want to get more referral business then go to your accountant and say I’ve got access to SMSF lending and can help some of your customers set up an investment property loan through their SMSF. It’s a very good source to get valuable referrals."
