SMSF Loans
Buying A Property Using Your SMSF
A Self Managed Superannuation Fund (“SMSF”) is effectively a privately controlled superannuation fund. The SMSF can have no more than six members, who must be trustees of the fund, or directors if there is a corporate trustee. The members are in charge of the investment decisions, as opposed to a ‘professional fund’ manager which is the case in many of the traditional “Industry Funds”.
SMSF’s have been able to borrow under strictly controlled conditions for more than 10-years. At the outset, the major banks and many other lenders were actively involved in the SMSF loan space, but around 2018, the majority of the major banks exited the market, saying that they wanted to simplify their loan books.
The withdrawal of the major banks created the (incorrect) perception that there are no SMSF loan options available; however this could not be further from the truth. Today there are a number of niche lenders who are actively competing for business.
Borrowing within an SMSF is definitely not for everyone and it is very important that you seek the right advice before proceeding. You should speak to your accountant, financial planner, lawyer and of course your broker because if you get it wrong, the consequences can be serious.
Parties to the Loan
The SMSF is the borrower and beneficial owner of the property (refer to the following comments about the Bare Trust). The loan documents will be issued in the name of the SMSF, and the SMSF will be responsible for making loan repayments.
Many lenders require that an SMSF must have a Corporate Trustee rather than Individual Trustees, as it gives greater protection to both the lender and the members of the SMSF.
The Bare Trust is the legal owner of the property, and holds the property for the benefit of the SMSF. The Bare Trust is therefore the legal purchaser of the property and its details are included on the contract of sale.
It is the Bare Trust that sets up the “Limited Recourse” nature of the loan, as it cannot hold any other assets except for the property. This is what makes the trust “bare” and it must transfer the property to the SMSF once the loan has been repaid
The Bare Trust can also be called the Property Custodian or Security Custodian.
These are the ultimate beneficiaries (‘owners’) of the SMSF. For an LRBA, the members of the fund must be the same as the directors of the Corporate Trustee of the SMSF.
Lenders will also insist that the members provide personal guarantees to the loan. This means that they are effectively risking their assets outside of super, therefore providing another layer of protection for the bank. This means that the lender only has limited recourse to the assets of the SMSF, they can pursue the assets of the members personally should something go wrong with the loan. To protect their interests, lenders will often insist that the guarantors obtain legal and financial advice before signing the loan documents.
We have done many loans to help our clients purchase assets in their SMSF and also to refinance existing SMSF loans.
Please note this is a high level overview only and we are only concentrating on the borrowing aspects. As previously mentioned, It is important to seek advice directly from your financial and legal advisers before setting up these structures.
SMSF Loans
An SMSF loan is known as a Limited Recourse Borrowing Arrangement or LRBA.
The security for the loan (the ‘recourse’) is limited to the property itself, and the assets in the remainder of the super fund are not available if anything goes wrong with the loan.
Lenders will typically take personal guarantees from the members.
Why Choose Proteger Financial Solutions?
Navigating the purchase of a home can be overwhelming, even if you have done it a number of times and that’s where Proteger Financial Solutions comes in. Here’s why partnering with us can make your journey smoother:
Our team of seasoned finance professionals has in-depth knowledge of the Australian property market and is well-versed in the intricacies of various government schemes and grants. We can also guide you on the process of making an offer.
Often the most daunting aspect of buying a property is understanding exactly what you can afford. Also, real estate agents will want to be assured that you are pre-qualified for the purchase. We can give you (and your agent) comfort via a pre-approval or confirmation of loan eligibility.
We understand that every individual’s financial situation is unique. We take the time to understand your goals and tailor financial solutions that align with your needs and aspirations.
As an independent finance broker, we have access to a wide network of lenders. Our wide network also allows us to shop around and find the best mortgage deal that suits your financial circumstances.
Navigating the paperwork and financial details involved in buying your first home can be time-consuming. Our team ensures a streamlined process, guiding you from application to settlement.
Don’t navigate the complex world of home buying alone. With Proteger Financial Solutions you can enjoy a seamless experience that puts you on the path to homeownership. Contact us today, and let’s turn your dream of owning a home in Australia into a reality!
We offer a great range of home loan solutions.
