2014 and beyond in the SMSF space

John Mohnacheff has over 30 years’ experience in the finance and insurance sectors, progressing from business development roles through to senior management positions.

Clive Kirkpatrick, general manager of mortgage broking, St George:

With almost 25 years’ experience in banking and financial services in Australia and offshore, Clive Kirkpatrick is experienced in business marketing, legal and compliance, supported by an MBA.

Iain Forbes, director, Australian First Mortgage:

Iain Forbes has over 50 years’ experience, seeing AFM grow into a national lender with 65 staff members. While he has considered retirement, he says he is too passionate to throw in the towel.

Greg Mitchell General manager sales, Homeloans Ltd

Greg Mitchell joined Homeloans in 2004 as a business development manager and later progressed to WA/SA state manager, before being appointed to general manager sales.

What is happening in the SMSF space right now?

John Mohnacheff: As the self-managed super fund (SMSF) lending space has grown, this segment has also seen an increase in undesirable practices. It is heartening to see the recent expanded role played by regulators, particularly in relation to ensuring clients are properly advised before making important decisions that affect their retirements.

Recent guidelines dealing with the influence of property spruikers and the blurring of independence by advisers set a positive tone for the future development of this space.

Clive Kirkpatrick: It’s a really exciting space at the moment – everywhere you turn there is someone talking, writing or reading about SMSF home loans. We’re definitely seeing some aggressive competition, a lot of media attention and of course, a regulatory focus. For us, this means we’re focusing on broker education.

Greg Mitchell: SMSFs have been around for almost 20 years in Australia and nearly half a million funds have been created in this time. As economic and regulatory environments change, so does how we fund our retirement. Direct property investment via SMSFs has become increasingly popular.

We have identified strong opportunities in the SMSF sector and as a result, we have enhanced our product offering, plus we continue to offer training to ensure brokers can take advantage of these opportunities.

Iain Forbes: SMSF is a new area of lending, and whilst some introducers have taken the time to study its requirements and policies, it is fair to say a majority do not understand the requirements.

AFM would encourage its borrowers to make sure they do have sufficient funds in the SMSF bank account after settlement. Borrowers should not look to utilise all funds in their bank account when buying their first property through an SMSF. A healthy bank balance after the purchase is settled is always the preferred option.

What are brokers finding attractive about introducing an SMSF proposition?

John Mohnacheff: Of great interest to brokers is the opportunity to assist new customers who are interested in growing their wealth via a self-managed fund. SMSF lending presents an opportunity for brokers to educate their existing client base and new clients about borrowing to fund new investment opportunities.

Many clients may not be aware of the ability to acquire property using borrowed funds via their SMSF, and brokers can play an important role in providing relevant background and credit product information.

Clive Kirkpatrick: There is a lot of business out there for the taking if brokers position themselves well. The potential for them to grow their business and build new relationships and networks through financial planners and accountants is vast.

It’s a really important service that the broker is providing and, if done right, one that will create a deep relationship between the broker and the customer. Brokers who write SMSF home loans tend to develop ‘very sticky’ and ‘long-lasting relationships’ with theirclients.

But that isn’t the only benefit; just knowing you have set your clients up in a sound and safe retirement plan is truly worth its weight in gold.

Greg Mitchell: SMSF lending provides an opportunity for brokers to diversify their business and enhance their revenue streams. It’s a great niche sector, and for brokers with strong affiliations with financial planners, accountants or lawyers it’s a healthy addition to their business.

Obviously, it has to be done properly. We’ve noticed a significant increase in demand from brokers wanting to get into this sector, which is why we bolstered our SMSF product offering.

Iain Forbes: A mortgage to an SMSF will hopefully remain on the books of the lender for some years.

At AFM, we pay our brokers an upfront commission and a trailing commission.  is gives the broker/introducer the satisfaction of receiving an income by way of trailing commission over the life of the loan, if the mortgage is not discharged earlier.

In addition, lending to an SMSF is new to most brokers and is an additional product they could market and sell to existing clients who have savings tied up in a super fund.

What can we expect in the SMSF space in the next year?

John Mohnacheff: We expect continued growth for SMSF loans in the short to medium term, with good potential for the future. Only a year ago, there were a few significant brokers testing the water with the odd deal or two, whereas we now see the growth of specialist brokers for whom SMSF loans have become a material and growing source of new business. I am also hopeful of an improvement in the quality of advice received by borrowers, and moves by industry participants to counter some of the less desirable practices in the market.

Clive Kirkpatrick: SMSF lending has been prevalent in the media over the last 12 months and given the growing spotlight, we expect greater focus from financial institutions on internal policies and procedures to ensure responsible lending.

Greg Mitchell: At Homeloans, we believe 2014 will be a more confident market. With regards to the SMSF sector, we continue to see good opportunities. Certain housing markets around Australia are performing strongly, with property investors a key driver. It’s likely a significant percentage of these investors are purchasing via their SMSF, so it stands to reason there’s a good pool of borrowers.

Iain Forbes: In just one word: growth. We expect growth, and would like to see controlled and managed growth – not growth for the sake of growing. AFM would not lend on a specialised property or a security that is unacceptable. In every instance, the security property is valued by an independent valuer on the AFM panel of accredited valuers.

How does SMSF lending fit in with your overall business?

John Mohnacheff: Our SuperCredit product caters to trustees of SMSFs seeking to invest in either residential or commercial properties. We are proud to offer our customers greater flexibility within this product, including higher loan-to-value ratios (LVRs), a low fee structure and some of the sharpest variable rates in the market. As a result, Liberty’s SuperCredit product line represents an exciting and growing part of our business.

Clive Kirkpatrick: In the current environment of low lending growth, SMSF lending is proving to be the exception. It is a product that St George Banking Group will be placing greater focus on in the 2014 financial year, as it represents a great opportunity to actively grow a product that has a market-leading feature – full interest offset.

Greg Mitchell: We introduced our Homeloans ProSmart SMSF in July 2011 as part of a niche range of solutions intended to build stronger networks with the Homeloans broker community and wholesale funders, as well as to expand Homeloans’ product offering.

The success of the ProSmart SMSF saw us recently bolster our SMSF offering further with the Homeloans Classic SMSF. As in any business, it is essential to evolve according to market needs, and the Classic SMSF allows established SMSFs to borrow funds for the purchase or refinance of residential investment properties, with an 80 per cent LVR and a low interest rate.

Iain Forbes: The directors of AFM welcomed SMSF lending with open arms when it was first introduced by one of the lenders on the AFM panel. The funder, having approved AFM, was satisfied with the quality of the credit staff who manage the AFM business, and within a few months of accrediting AFM, the senior credit manager of AFM was given a delegated lending approval of one million dollars. This means that an SMSF loan that satisfies all conditions is approved ‘in house’ – what more can introducers ask for?

How big is the SMSF sector in terms of growing number of trustees and value of assets under management?

John Mohnacheff: With the number of funds and assets under management increasing significantly, the general SMSF sector now accounts for over $500 billion. This equates to roughly a third of all assets in superannuation. Of this amount specifically, SMSF lending only represents about $7 billion, which suggests tremendous growth potential in the future.

Clive Kirkpatrick: Australian Taxation Office data shows SMSF lending has grown from $10.83 billion worth of assets in residential property in June 2008 to $14.87 billion in March 2012. For St George, SMSF lending represented 2.5 per cent of total lending flows in the 2013 financial year and has grown organically by 80 per cent over the last 12 months.