Self Managed Super Funds – Lending Policy
Borrowing Structure:
The borrowing structure involves a loan to the SMSF Trustee with a Security Custodian taking legal title to, and holding on trust for the SMSF, the investment property being purchased. The SMSF holds beneficial interest in the investment property.
The loan is limited in recourse, with the bank’s right against the SMSF Trustee, in all circumstances limited to the bank’s right as mortgagee in relation to the property. There will be strictly no recourse to any other assets of the SMSF or to either the SMSF Trustee or the Security Custodian.
The borrower must be a SIS Act compliant SMSF permitted to enter in a gearing arrangement.
The SMSF Trustee must ensure the property and the borrowing arrangement would not breach any of the superannuation investment rules and requirements including:
· The sole purpose test (s62);
· The investment strategy requirement (s62 (2)(f));
· The related- party acquisition rule (s66);
· The arm’s length dealing requirement (s109);
· The in-house asset rules (s71);
· The prohibition against charging (Reg 13.14);
Eligibility:
Lenders Self Managed Super Fund Property Loans are AVAILABLE for:
- Property acquisition only for:
- Non specialised commercial properties
- Residential properties being houses, units, and villas/townhouses
- Specialised commercial property deemed as SIS Act compliant and acceptable to the bank under normal policy guidelines
- Investment purposes only
- Loans secured by 1st Registered Limited Recourse Mortgage only
Lenders Self Managed Super Fund Property Loan is NOT AVAILABLE for:
· Acquisition of:
- Owner occupied residential properties
- Vacant Land
· Property Construction
· Property refurbishment or renovation
· Low doc applications
· Refinances
· Specialised Commercial Property deemed unacceptable by the lender
Loan Structure:
For stand-alone transactions the loan structure is to support a trust arrangement between the SMSF and the Custodian taking legal title to the property being purchased as depicted in the below process map:
· The SMSF chooses an eligible property
· The SMSF Trustee borrows directly from the bank (limited recourse loan).
· The SMSF contributes the additional funds to complete the purchase and transaction costs
· The Custodian Trust (under Trust Arrangement Deed) takes legal title to the property and holds the title to the property on trust for the SMSF.
· The Custodian Trust must be a company entity.
· The SMSF acquires beneficial interest in the property.
· The lessor of the property is the Custodian Trust.
· Once the SMSF repays the loan, title to the property can be transferred to the SMSF
· For commercial property transactions the vendor may be an unrelated party or a related family company. A fund member may also choose to sell a commercial property to the SMSF.
· The SMSF Trustee is prohibited from acquiring residential real property from a related party. Residential property transactions must be arms length transactions and the vendor must be an unrelated party.
Loan Term:
Maximum loan can vary by lender (residential or Commercial) however the term is often 10 to 25 years
Loan Structure:
Commercial Loan - either variable or fixed
Business Loan - either variable or fixed
Security and Extension:
Lenders will extend from 60% to 70% of the value of the property to be financed for commercial property and 65% to 80% for residential property.
Servicing:
The servicing of the facility must be met by the SMSF through a combination of:
- 80% of rental income received by the SMSF from the property being purchased and other property held
- 100% of other investment earnings of the SMSF
- 80% of proven regular or proven available members contributions
Note: Guarantor income cannot be included in servicing assessment. Directiors guarantees usually required to be executed.
Disclaimer: Lenders reserve the right to amend their lending policies at any time, so all loan details must be confirmed prior to any commitment being made.