The Big Banks don’t do SMSF lending, but your accredited broker does

I wanted to discuss elements of SMSF lending given the recent policy updates by the Federal Government and media attention on the $3m rule as well as the controversial unrealised gains tax (now scrapped).
The big 4 major banks and Macquarie stopped lending to SMSFs at the end of last decade, but this has not stopped investors from continuing to borrow in their SMSF structures, particularly for property. Brokers have been ideally placed to navigate the specialist SMSF lenders and work with investors’ advisors to MAKE it happen for borrowers looking to add real estate to their superannuation via SMSFs and provide for their retirement.

Lending and SMSF stats:

SMSFs are one of Australia’s fastest growing investment cohorts at 3000 per month. The distribution of SMSFs skews at both ends where over a quarter of SMSFs have less than $200k and around 10% have $3m+. SMSFs value of Australian Superannuation[1] is approaching 25% of the total ~$4.3T (June 2025 ATO data). SMSFs are part of Investors’ considerations.

Key Features of the SMSF Loan

• SMSF loan is a type of loan available to trustees of a Self-Managed Super Fund to buy property.
• Residential and commercial property is allowed, but the types of property and locations are restricted – see your broker/lender for more details.
• Bare Trust Requirement: The property purchased must be held in a separate trust called a “bare trust” (or custodian trust), which holds the title until the loan is repaid.
• Single Acquirable Asset and Sole Purpose Test: Each loan can only be used to purchase a single property asset, and any improvements made must not change the nature of the asset (for example, residential properties cannot be converted into commercial spaces).
• Limited Recourse Borrowing Arrangement or LRBA, meaning the lender only has recourse to the specific asset purchased only with the loan in the event of default. The loan structure protects the SMSF’s other assets from risk if the loan cannot be repaid. However, borrowers should note that the specialist lenders will typically take a personal guarantee over the debt which can negate the impact of the LBRA.
• SMSFs should have a ‘liquidity pool’ of readily accessible liquidity/cash typically around 10% of the SMSF’s value.
• Repayment Requirements: All loan repayments must come from within the SMSF, meaning the SMSF must have enough liquidity and incoming contributions to cover repayments.
• Credit considerations: Lenders will review the SMSF’s financial health, cash flow, and history to ensure it has the means and capacity to meet loan obligations.
• Investment Strategy: The SMSF must have a written investment strategy that permits property investment and aligns with the SMSF’s overall objectives.

SMSF Loan Product

• Higher interest rates – typically 1-2% higher standard residential and commercial property loan rates. (Check with your broker, as some lenders have specials from time to time).
• Loan Fees – SMSF lending attracts higher application fees, in the vicinity of 0.50% to 1%+ of the loan value, depending on the property grade and LVR. Lenders will differ with each having their own specific fee arrangements and criteria.
• LVR – Loan to Value Ratios are generally lower than standard property loan rates and are strictly enforced. LVRs are a key determinant for loan pricing. Residential LVRs generally allow up 70%-80%, but some specialist lenders have recently announced they will go up to 90%. Commercial property LVRs are generally 60%-75%.
• Loan terms – similar to standard property lending between 15-30 years, with one specialist SMSF lender announcing they will do up 40 years for eligible residential properties.
• Product features - similar to standard loan products, with interest-only periods and offsets available from some lenders

THE COMMENTARY BELOW IS GENERAL ONLY AND YOU WILL NEED TO CONFIRM ANY POTENTIAL TAX CONCESSIONS AS THEY MAY APPLY TO YOU WITH YOUR FINANCIAL ADVISOR

Tax Advantages of SMSF Property Investments generally can be:

• Reduced tax rates: Net income generated from SMSF-held property is taxed at the concessional superannuation rate of 15% in the accumulation phase and can progress towards and may be tax-free if the SMSF is in the pension phase.
• Tax Deductibility of Interest Payments: Interest payments on SMSF loans are tax-deductible, which reduces the taxable income of the SMSF.
• Capital Gains Tax (CGT) Discounts: SMSFs pay a discounted CGT rate of 10% on assets held for more than 12 months, with the potential for zero CGT if the asset is sold during the pension phase. Note that capital losses in SMSFs in accumulation phase can only be used to offset capital gains and cannot be used to offset any other income.

Fees and Additional SMSF Costs

Establishment Costs includes the SMSF structure set up, legal fees, professional accountancy and advisory fees. The Bare Trust needs to be established with associated documentation.

Annual and on-going fees for an SMSF include accounting, audit, and administrative costs, with a mandatory $259 ATO supervisory levy. Research I have done recently showed generally that basic accounting and audit fees can start around $1,300 to $2,000+ per year, depending on complexity, but total costs can reach $5,000 or more, especially for those requiring professional advice or investing in higher-cost assets. The median annual cost for an SMSF is $8,611, though this varies significantly based on fund balance and investment choices. ATO also has annual valuation requirements.

Property taxes: Property attracts specific taxes, such as land tax, that vary by State – see your financial advisor to understand how this may apply to your individual circumstances.

As these costs can run quite high, often into several $1000s, and can be recurring and on an annual basis, borrowers looking to purchase property into their SMSFs should discuss the suitability of these investment and retirement strategies with their financial advisors.

Pros and Cons of SMSF Loans – see your financial advisor to understand if this is suitable and applicable to you

At MAKE, we can help you leverage the SMSF loans opportunities and navigate eligibility and adherence to strict lending policies and regulatory requirements.

[1] In total Australian Superannuation we have the 4th largest retirement savings pool in the world behind the UK, Canada and the USA. We’re expected to overtake the UK and Canada by early 2030s.

Disclaimer: The content of this post is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product, investment position or strategy. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.