In the dynamic landscape of Self-Managed Super Funds (SMSF), recent trends have unveiled substantial opportunities for brokers, especially in property investments and refinancing strategies. The SMSF market, particularly in property purchases, has witnessed steady growth, presenting a ripe scenario for proactive broker involvement.
Let’s examine some key market insights from Richard Chesworth, Bluestone’s Head of Specialised Distribution, and how we use our expertise to support brokers navigating this space.
A key insight in the SMSF sector is the growing potential for refinancing. Richard, Bluestone’s in-house industry expert, clarifies, "While recommending property purchases falls under 'financial advice,' assisting SMSFs with refinancing is considered 'credit advice.' This distinction opens doors for brokers to engage with Trustees, accountants, and financial advisers." This aspect highlights the crucial role of brokers in guiding SMSF trustees through the refinancing process, leveraging their expertise to provide optimal credit solutions.
The Limited Recourse Borrowing Arrangements (LRBA) market has undergone a substantial shift. In 2022, around 36% of SMSF lending was with non-bank lenders, while 64% remained with traditional banks. However, banks' dwindling interest in servicing these needs, coupled with increased interest rates, led to a decline in SMSF borrowings from $27 billion in March 2021 to around $23 billion by late 2022. Interestingly, despite the overall growth in property values, the assets securing SMSF loans decreased from $65 billion to $53 billion in the same period.
This shift signifies a growing reliance on non-bank lenders for new SMSF property purchases. However, a crucial gap emerges: a lack of awareness about more cost-effective refinancing options. Consequently, SMSF trustees are often left to clear residual loans from other reserves or, in some cases, resort to selling assets.
Richard observes that the major banks' exit from the SMSF lending space in 2019 paved the way for non-bank lenders to fill the void. They have effectively catered to the demand for new purchases. Yet, the area of refinancing to more advantageous solutions remains largely untapped. This underrepresentation forms a significant opportunity for SMSF trustees, with the support of their advisors and mortgage brokers, to explore beneficial refinancing avenues.
The evolving SMSF market, marked by these trends, signals a call to action for brokers. They are uniquely positioned to guide trustees through these changes, especially in identifying and leveraging refinancing opportunities with non-bank lenders. By addressing this need, brokers can not only expand their own business avenues but also significantly benefit SMSF trustees in optimising their investment strategies in this shifting financial terrain.
The effect of higher interest rates is critical for SMSFs. Richard explains, "We're seeing savings in excess of 3% when a customer refinances their SMSF loan with Bluestone, which can deliver an annual interest savings in many cases of more than $8,000."
Additionally, refinancing to a lower rate positions an investment back in a more positively geared way, which is advantageous during the accumulation phase of SMSFs. Richard adds, "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."
Competitive pricing in the SMSF sector has been driven by the rise of non-bank lenders, with Bluestone leading the pack. As well as our competitive rates, we assess SMSF lending applications within just two days, to match the timeframe for residential mortgage applications. This allows our broker partners to be confident in meeting settlement deadlines.
Recent changes mean we’re able to service more kinds of SMSF customers. Richard highlights: "…we're able to consider proposed additional contributions, and we now have no minimum liquidity requirement (previously 5%). We support the compliance needs of an SMSF by ensuring that all features of our SMSF product meet the Limited Recourse Borrowing Arrangement requirements."
Rising interest rates directly affect your customers’ borrowing potential. To address this market challenge and support borrowing capacity, Bluestone considers a member’s proposed contributions with no history, in addition to their existing contributions, up to the concessional contributions cap of $27,500.
We understand the importance of educating brokers in this specialised field. It’s one thing to offer a product, but another to truly partner with stakeholders like our broker network to unlock the value of our SMSF products for customers. Richard emphasises, "Bluestone provides market-leading education sessions to help brokers understand how SMSFs are structured, the confidence around communicating with customers to ensure they are providing credit advice rather than financial advice, and hands-on support through applications."
In the coming six months, we anticipate continued purchase activity in the SMSF segment. We also expect increased refinance activity as SMSFs complete their annual returns and realise the considerable increase in their interest costs.
Bluestone’s unique expertise, streamlined application process, flexible SMSF features and focus on supporting brokers set us apart from other non-bank lenders. We’re not just a lender. We’re a trusted partner in navigating the SMSF lending landscape.
To learn how Connective Elevate can assist with your customer scenarios and their SMSF requirements, book a 15-min call with your Connective Home Loans BDM.
