Big possibilities for brokers, says non-bank
Bluestone Home Loans has launched a self-managed super fund loan that can be used to buy or refinance residential property.
The product caters for people who already have a SMSF set up and want to acquire a property using a portion of funds built up within the fund.
Borrowers are required to have a complying SMSF with a corporate trustee with net assets over $200,000, and the related property is to be owned by a separate corporate security trustee.
Depending on the property location, eligible customers can borrow up to $1.5m, with an LVR of 80%, the Sydney-based non-bank lender said.
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The loan can be used for new purchases and refinances, and there are options to make either principal and interest or interest-only repayments, Bluestone Home Loans said. Due to potential compliance risks, the loan doesn’t provide a redraw or offset facility.
Bluestone Home Loans chief customer officer James Angus (pictured above left) said the SMSF residential loan product was created because more than one million Australians have made the decision to take more control of their own superannuation.
Many SMSFs are keen to invest in property with the view to build an income stream for retirement, presenting an “enormous opportunity” for brokers, he said.
“We spoke to brokers earlier this year to understand their needs and frustrations regarding SMSF loans,” Angus said. “As a result, we’ve designed this product based on three fundamental principles: a focus on compliance, ongoing support to brokers throughout the loan process, and a clear, easy to understand policy.”
“Our ambition is to have the best SMSF loan offering in the market, both in terms of product and the support and education we can provide to brokers and their staff. We’re excited to deliver the product that we know will meet the needs of our brokers and their clients.”
Often referred to as “DIY super”, an SMSF is a form of retirement saving, with the sole purpose of providing superannuation payments in retirement. It falls under the same laws as all superannuation in Australia and is regulated by the ATO.
Speaking to MPA about SMSFs and how they operate in conjunction with a home loan, Bluestone head of specialist distribution Richard Chesworth (pictured above right), said members of the fund (who also become trustees of their own super fund) have greater choice of investment, and control of where they invest their funds.
With that also comes the responsibility of managing the fund appropriately, he said. When it comes to borrowing in super, the primary purpose of borrowing is for the acquisition of an asset.
“When you borrow to acquire the asset, you’re borrowing from Bluestone (as the lender), as the loan to the self-managed super fund: that could be up to 70% or 80% of the purchase price,” Chesworth said.
Once funds are provided to the SMSF, and the SMSF (as with any other property purchaser), puts their own cash in, or in other words, pays the deposit, he said.
“You’ve got the borrowed funds, plus the cash injection from the SMSF (cash already held within the member’s self-managed super fund),” Chesworth said.
The property is held in a different legal entity, which is the legal owner, and the SMSF is the beneficial owner, he said.
Rules governing SMSFs prevent the member or a relative from using the residential property.
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For those who have an existing retail superannuation fund, there is also an option to conduct what is commonly referred to as a “roll over” and transfer those funds into a SMSF, Chesworth said.
Laws governing SMSFs were introduced in September 2007, and the legislation was updated in 2010.
“Since these rules have come into play, people choose where they want to invest, and Australians have had an appetite for residential property over the years,” Chesworth said.
“What borrowing has done is made it more achievable to gain access to residential property through super, which they may not have had the opportunity to do before, without the ability to borrow.”
Appointed to the role early this year, Chesworth is responsible for the development and distribution of specialised and regulated lending products.
Education will be at the heart of the support Bluestone Home Loans provides to brokers, enabling them to leverage the non-bank lender’s experience to diversify their businesses, he said.
“In addition, support will be provided at every step of the process so brokers can feel confident their clients’ compliance needs are met – which is often the biggest challenge in SMSF lending.”
