I'm Jason Birks, a Brisbane mortgage broker. I spent over ten years lending at Westpac and NAB before starting Birks Financial Group, and I compare more than 60 lenders. Under current rules, an SMSF can no longer borrow to buy residential property. SMSF lending is now for buying commercial property and refinancing existing loans, including loans secured by residential property the fund already owns.
How SMSF borrowing works
A super fund can only borrow under a limited recourse borrowing arrangement (LRBA). The property is held in a separate holding trust until the loan is repaid, and if the loan goes wrong, the lender can only claim that property, not the fund's other assets. That's why SMSF loans have stricter terms than ordinary home loans.
- One asset per loan. The loan must be for a single asset, or a group of identical assets.
- Repairs, not improvements. Borrowed money can be used to buy and repair the property, but generally not to improve it or change its character.
- The fund must meet its investment strategy. The trustees need to be satisfied the purchase and the loan suit the fund.
Refinancing an existing SMSF loan
The SMSF lending market has changed a lot, and many funds are on loans that haven't been reviewed in years. Refinancing can lower the rate, change the term or move away from a lender that has left the market. It needs the same holding trust structure to carry across, so the legal side matters as much as the rate.
- Check your current rate against the SMSF lenders still active
- Move to a lender with a better term or repayment structure
- Consolidate the loan with a lender that suits your fund's plans
- Refinance a loan secured by residential or commercial property
Buying commercial property in your SMSF
Commercial property is the most common reason funds borrow today. If you own a business, your fund can buy the premises and lease them to your business at market rent, which isn't allowed with residential property. The rent goes into your super, and the business has a stable home.
- Deposit. SMSF commercial lenders commonly lend up to about 60% to 80% of the value, so expect to fund a larger deposit plus stamp duty and costs from the fund.
- Liquidity. Many lenders want the fund to keep a cash buffer after the purchase.
- Servicing. Lenders look at the rent and the fund's contributions, and sometimes the members' income.
- The lease. A formal lease at market rent, especially when it's to your own business.
Getting the right advice
SMSF lending sits across credit, tax, super and legal rules. I handle the loan. Your accountant or a licensed financial adviser should confirm that borrowing suits your fund, and a lawyer sets up the holding trust. I'm happy to work with your existing advisers.
Questions people ask
Can my SMSF still borrow to buy residential property?
No. Under current rules, SMSFs can no longer borrow to buy residential property. A fund that already has a loan on a residential property can still refinance it, and funds can still borrow to buy commercial property.
Can I refinance my SMSF loan?
Yes. You can move to another SMSF lender if the holding trust and loan structure carry across. I'll compare the lenders still active in the market.
Can my SMSF buy my business premises?
Yes, an SMSF can buy commercial property and lease it to a related business at market rent. Get advice first, as the rules are strict.
Can an SMSF still borrow to buy commercial property?
Yes. SMSFs can still borrow to buy commercial property under a limited recourse borrowing arrangement.
How much deposit does an SMSF need for commercial property?
Usually 20% to 40% of the price plus costs, depending on the lender and the property, and many lenders also want cash left in the fund afterwards.
