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SMSF loans can be a great new source of revenue, but brokers must take care when writing them, says House+Home Loans broker Rael Bricker
How long have you been writing SMSF loans and how many do you/your business write?
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I have been writing SMSF loans for about three years. I actually held back a long time before starting because I was a bit unsure about them. I probably write around one to two per month. I started writing these loans because clients wanted me to write them.
I have been writing more in recent years, as people have had limited borrowing capacity in their personal right and therefore in order to expand their property portfolio, they have been looking at self-managed super as another option.
What are the benefits of being involved in this space?
It is an interesting niche and one that more and more borrowers are looking at. I have some significant reservations about the marketing of SMSFs to all and sundry – especially by ‘pseudo advisers’, mainly property spruikers.
The SMSF area is not for the faint hearted and must be treated with due respect and caution. I believe a necessary level of sophistication is required, and many borrowers do not exhibit that level of understanding.
What must brokers be cautious of?
They need to make sure their customers are fully informed and know exactly what they are doing. I think there are too many people who don’t understand what they are doing, who are being told a story by a lot of property spruikers to buy a property in self-managed super because it’s easy. They say to take your money out of a secure government super fund and put it into your self-managed fund, and sometimes maybe the clients don’t understand the whole picture.
How do you find potential SMSF clients?
Most are existing clients who have reached their capacity limits of personal borrowing and are looking at further avenues for investing. Most are in their 40s or 50s and have built up substantial super. They don’t necessarily own their own home; in fact, my investors rarely do, as all they are interested in is using the equity to buy more.
How difficult is it to write SMSF property loans?
It takes a lot of time to write an SMSF loan. Most lenders have manual processes that take significant time and cost to reach approval. Some lenders send the trust deeds out to an external solicitor for review and that costs the clients between $1,500 and $2,000, depending on the situation. Obviously, that also means there is a time lag.
What are the major challenges you face in dealing with SMSFs?
The most common problem is that the accountants and financial planners who set up the funds then refuse to do the financial advice certificates required for the borrowing. These certificates are not really worth anything and at the end of the day, these accountants and planners probably express the same views as myself in terms of the level of sophistication required.
What do you attribute the increase in demand for SMSFs to?
The last few years have seen corporate super move sideways and backwards. Property has, over the long term, been a consistent performer, so there is a strong linkage there.
What advice would you give to brokers looking to begin writing SMSF loans?
I think they have to make sure their internal compliance procedures are up to date and they have to be willing to walk away from a deal when the client doesn’t understand. I have had to do that a number of times.
