New data should force rethink on controversial ban, as AFIA warns of reduced mortgage market competition
New industry data released by the Australian Finance Industry Association (AFIA) shows the federal government's ban on residential self-managed super fund (SMSF) lending will hit a market far larger than officials estimated when the policy was negotiated.
When the ban was announced, Senate leader Penny Wong said SMSF loans accounted for “a very small number” of the total each year.
She said: “Only about 4,000 new self-managed super fund borrowing arrangements occur each year on average. People are still able to purchase, we are simply banning these borrowing arrangements.” The estimate was based on Australian Taxation Office (ATO) data from 2024.
But preliminary figures from AFIA's non-bank lender members show more than 16,000 new residential SMSF loans, backed by $10.3 billion in security, were written in the 2026 financial year – roughly four to five times the ATO estimate.
Because AFIA's membership does not cover the whole market, the association says the true figure is likely even higher.
How the ban came together
The ban was not originally on the government's agenda. It emerged on 23 June, when Treasurer Jim Chalmers confirmed in Canberra that Labor had agreed to prohibit SMSFs from using limited recourse borrowing arrangements (LRBAs) to buy residential property, in exchange for Greens support to pass the government's budget tax package through the Senate.
Chalmers downplayed the scale of the change, arguing that "this is a very small part of the housing market”.
The reversal was notable because the government had rejected an identical Greens demand as recently as the year before, despite the LRBA structure having drawn scrutiny for more than a decade – including from the 2014 Murray Financial System Inquiry and the Council of Financial Regulators in both 2019 and 2022.
The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, which also overhauls the capital gains tax (CGT) discount and negative gearing rules, passed both houses and received Royal Assent on 26 June.
Under its terms, the ban is prospective: existing SMSF arrangements are grandfathered, and a 45-day transition window – landing on 10 August 2026 – protects contracts and refinancing arrangements already under way.
AFIA says numbers don't add up
AFIA chief executive Diane Tate said the new lender data should force a rethink of the assumptions behind the policy. "This is not a small or marginal segment of the lending market," Tate said, noting that the ATO's benchmark figure is based on data that Treasury officials have acknowledged is around three years old.
Tate also pointed to loan quality: AFIA members' residential SMSF lending carries an average loan-to-value ratio of about 67%, well below the 70-80% typical of mainstream residential investment lending – a data point AFIA argues undercuts the systemic-risk case originally used to justify the ban.
Rather than seeking to reverse the ban outright, AFIA is instead pushing for a targeted exemption for new-build residential dwellings, using a definition already legislated in the government's own capital gains tax and negative gearing reforms.
"The Government has already drawn a principled distinction between new and established residential dwellings in its CGT and negative gearing reforms, preserving full concessions for new dwellings to encourage housing supply. Applying that same logic to SMSF borrowing is internally consistent, uses the Government's own drafting, and does not reopen the core policy agreement," Tate said.
Non-bank lenders have filled the SMSF lending space since the major banks retreated from SMSF lending in 2018; AFIA argues removing the segment now risks weakening mortgage market competition as well as private capital flowing into new housing supply.
“Removing this segment does not just affect SMSF trustees, it weakens competition in the broader mortgage market, and directly and adversely impacts housing supply and affordability across markets,” said Tate.
