APRA wrong on SMSF lending

In the wake of the Australian Prudential Regulation Authority's (APRA's) warning that loans to self-managed super funds (SMSFs) are more complex than those in a traditional retail environment, Craig Morgan, director of SMSF Loans, has voiced his disagreement.

"While they are limited recourse, the rewrite of SIS 67A in July 2010 made it clear that Personal Guarantees were acceptable," he said.

"APRA's concerns around enforceability are therefore viewed as extremely conservative."

With more than five years experience lending in the DIY space, Morgan said that the average loan-to-value ratio (LVR) for residential property loans was around 65 per cent, with commercial around 55 per cent. 

Thus, given the fact that lenders did not need to discount loans to self-managed super funds compared to standard residential lending, Morgan said that the attraction of this type of lending was obvious.

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"While it is obviously very early days, we are not aware of any significant level of default and it appears likely (if extant lending policies are maintained) that APRA's assessment of 'potentially higher loss profile' will not become a reality," he said.

"However, there is a need to ensure that SMSF trustees are not unduly influenced about property investments and the Government should get on and regulate LRBA (limited recourse borrowing arrangements) as financial products as they advised in 2010."