Fifteen days on from Labor's bombshell announcement, broking industry weighs alternatives as SMSF lending ban changes the game for clients
It has been 15 days since Labor's SMSF residential lending ban fell like a lead balloon on the broking industry.
The government's move to ban new limited recourse borrowing arrangements (LRBAs) for residential property inside SMSFs, confirmed by treasurer Jim Chalmers on 23 June, closed off one of the few remaining tax-advantaged routes into property investment. It came just weeks after the May Budget curtailed negative gearing and softened the capital gains tax (CGT) discount on established dwellings, moves framed by Labor as aimed at rebalancing the market toward owner-occupiers.
Reactions to the SMSF lending ban were uniform in their outrage, with lenders, brokers and broker associations criticising the move as misguided, poorly planned and rash.
But while the initial shock has subsided, there remains significant uncertainty over what the ban means for the broking industry as a whole.
Aaron Christie-David (pictured), managing director of Sydney-based brokerage Atelier Wealth, was as surprised as anyone else at the sudden ban on SMSF residential lending.
The ban "absolutely" came out of left field for Christie-David. "I see zero logic in it. One, people didn't vote for this change. It was never flagged as a discussion point. Zero consultation has been had with any stakeholders and it's a 45-day window. We're talking about a big financial decision, a massive financial decision, and now people are being pushed into a corner and for what – a very small segment of the market."
Following the Budget crackdown on negative gearing and the CGT discount, SMSF lending emerged as "a real opportunity" for tax-advantaged property investing, he says. "So it definitely caught us off guard."
"Why is the government intervening with people's long-term retirement plans?" he says. "We have prudent investor clients, who have a financial planner, who have an accountant, who have a mortgage broker. They're sophisticated – and that's what we want from people. We want them to be financially independent of the government, so that they're not relying on payouts for pensions or life support when they get to retirement phase."
Christie-David dismisses the suggestion that the ban will help address housing inequality. "Is it the right logical move regulation wise? Is it going to solve the issues around housing affordability or first home buyers getting in? No."
He's not disputing the scale argument – government figures put SMSF lending at under 1% of total residential borrowing nationally – but he wants someone to actually show him how the ban moves the dial on housing affordability. "It's not like it's a massive needle mover," he says. "No one has pointed out that."
But while the ban may not be a massive needle mover nationally, it is being felt keenly by brokerages across the country.
SMSF residential lending makes up around 20–25% of Atelier Wealth's deal flow – enough to notice, but not enough to break the model. Still, there's no denying the ban demands a strategic rethink.
Thankfully, "we're not a one-trick pony," Christie-David says, pointing to commercial lending, self-employed clients, first home buyers and bridging finance as the rest of the book.
Don't rush it
Christie-David is "100% worried" that borrowers are rushing in to secure a property in their SMSF portfolio before the estimated 10 August cut-off date, jumping into a major financial decision without the proper guidance or a clear understanding of the real risks involved.
"To jump in on a 45-day window, to find something that is going to tick all the boxes for a long-term decision like buying through super, that's a massive knee-jerk reaction… The best assets aren't just going to fall from the sky in this small time," he says.
For that reason, Christie-David is a strong advocate for engaging a buyer's agent in this instance, "because we want someone to be a second set of eyes looking over the asset that [the client] is choosing."
He describes an investor base splitting into two camps since the SMSF lending ban – those who have acknowledged the deadline and are working towards it, and those who believe it's too big a decision to make on such a tight deadline.
Longer term, Christie-David is telling investors what he's told them through every other policy shift – don't build a strategy around government settings that can be wound back.
"You just have to be very considerate about the next three or four moves you're going to make," he says. So far, the approach seems to be paying off: leads, inquiries and submissions at Atelier have all trended up since the May Budget, as investors outgrowing their existing broker or bank look for someone across the detail.
What the MFAA is hearing from brokers
Naveen Ahluwalia, head of policy and legal at the Mortgage & Finance Association of Australia (MFAA), says the association has spoken to a significant number of brokers with expertise in SMSF lending since the ban was announced, and the reaction has been mixed.
"There's still a little bit of surprise and shock" given how little consultation preceded the change, says Ahluwalia.
At the same time, brokers are focused squarely on supporting clients through the transition. Lenders have issued clear communications on application deadlines, and there is "a volume of activity that is not insignificant" as borrowers move to lodge applications before the estimated 10 August cut-off date.
The MFAA has published FAQs on its website setting out key dates and info, and Ahluwalia says the association is sharing lender announcements as they come through "so that there's a bit more certainty in the market”.
While Ahluwalia understands some of the policy motivations behind the SMSF residential lending ban, she flags a broader concern shared by the industry: SMSFs have historically added a layer of investment into new housing supply, and it isn't yet clear what will replace that as the market adjusts.
The MFAA is looking at ways to reframe the public narrative around who is affected by the ban. Rather than a change that only touches wealthy SMSF investors, Ahluwalia says the association wants to showcase broker businesses and the real clients caught up in the deadline, with more case studies expected to surface in the coming weeks.
A trust alternative?
On how brokers might respond over the longer term, Ahluwalia points to product innovation from lenders as the likely path forward. "I've got no doubt that we will see product innovation in this space," she says, arguing that brokers' expertise in understanding client needs, combined with their position as a trusted adviser, means the channel is well placed to help clients pursue alternative structures as investor appetite adjusts to tighter settings.
“We have a very resilient industry,” says Ahluwalia. “And we're an industry that provides choice to both consumers and small businesses.”
Christie-David sees company and trust lending as a viable move for investors locked out of both negative gearing and, now, SMSF residential lending. "We've been doing trust and company lending for quite some time," he says, noting the shift is opening up broader conversations with accountants around entity structure, tax treatment and loan setup.
On who's actually funding these deals, Christie-David points to the non-banks like Pepper Money, Firstmac and La Trobe (a logical result of the major banks’ recent exits from the space).
But that dominance comes with strain, with turnaround times blowing out amid an influx of brokers "jamming" lenders with applications of "varying degrees of quality."
Christie-David also concedes the strategy isn't simple. Company and trust structures carry ongoing costs – annual reporting, accounting and tax obligations that personal-name purchases do not. But while not easy, this complexity acts as a filter: it deters casual investors and rewards those willing to go the extra mile.
