The major banks exited SMSF lending years ago. If your SMSF loan is with a big bank, you could be paying too much. Here is what to do about it.
Between 2018 and 2020, Australia’s four major banks quietly exited the SMSF lending market. CBA, ANZ, NAB and Westpac all stopped writing new SMSF loans, citing compliance complexity and risk appetite. The problem is that thousands of SMSF trustees who borrowed through these banks before they left are still sitting on those loans today, often on rates that have not moved in years, with a lender that no longer competes in this space and has no incentive to offer them a better deal. If your SMSF property loan is with a major bank, there is a real chance you are paying significantly more than you need to. And unlike standard home loans, most SMSF borrowers have never been told they can refinance.
What happened when the major banks left SMSF lending
The major banks did not exit SMSF lending overnight. It happened gradually from around 2018, driven by a combination of the Banking Royal Commission, APRA guidance on complex lending, and internal risk appetite changes. By 2020, all four majors had stopped originating new SMSF loans entirely.
What this meant for existing SMSF borrowers was significant. Their loans did not disappear, but their lender did stop competing. With no new SMSF customers to attract, there was no commercial incentive for the major banks to offer competitive rates to their existing SMSF book. Many borrowers were simply left on whatever rate they had at the time, with no proactive outreach to review or improve their position.
The specialist SMSF lenders who filled the gap, including La Trobe Financial, Liberty, Thinktank and Firstmac, have been actively competing for this market ever since. Rates and loan structures have evolved significantly in the specialist space, while the major bank legacy book has largely stood still.
Why SMSF refinancing is different from standard home loan refinancing
Refinancing an SMSF loan is more complex than refinancing a standard home loan, and this complexity is one of the reasons many trustees have never considered it. A standard home loan refinance involves moving from one lender to another, updating the mortgage on the property title and signing new loan documents. An SMSF loan refinance involves all of that plus the bare trust structure that sits underneath it.
When an SMSF borrows to purchase property, the property is not held directly in the fund. It is held in a separate bare trust, with the SMSF as the beneficial owner. The loan is secured against the property in the bare trust. When you refinance to a new lender, that bare trust structure needs to be reviewed, and in some cases updated, to meet the new lender’s requirements.
This does not make SMSF refinancing impossible. It makes it a process that requires a broker and a solicitor who understand SMSF structures. With the right team, the refinance is manageable and the rate savings can be substantial.
How much could you save by reviewing your SMSF loan?
The rate gap between legacy major bank SMSF loans and current specialist lender rates varies depending on when the loan was written and what type of loan it is. In some cases the gap is modest. In others, particularly for loans written before 2016, the difference can be 1% or more.
On a $600,000 SMSF loan, a 1% rate reduction saves $6,000 per year in interest, or $500 per month. Over a five-year period that is $30,000 in savings. Even a 0.5% reduction saves $3,000 per year. Given that SMSF property loans are typically held for the long term, the compounding benefit of a lower rate is significant.
The savings are not always the primary reason to review. Loan features also matter. Many legacy SMSF loans have limited offset account access, inflexible repayment structures or restrictions on additional repayments. Specialist lenders have improved their product offerings considerably since 2020, and a review might reveal features that better suit the fund’s current cashflow position.
What to check before starting an SMSF loan review
Before approaching a broker about refinancing your SMSF loan, it helps to gather a few key pieces of information. You will want to know your current interest rate and loan type (variable or fixed), your current loan balance and remaining term, the name of the trust that holds the property (your bare trust), and whether your fund’s trust deed has been updated since the loan was originally written.
Your SMSF auditor or accountant can help you locate most of this information if you do not have it readily to hand. It is also worth checking whether your loan is currently in a fixed rate period, as breaking a fixed rate can incur costs that may offset the benefit of switching.
Once you have these details, a broker who specialises in SMSF lending can assess whether refinancing makes sense and which lenders would be comfortable with your fund’s current position, property type and loan size.
Which lenders currently offer competitive SMSF loans in Australia?
The specialist SMSF lending market in Australia is smaller than the standard residential market but has become increasingly competitive since the major banks stepped back. The key lenders currently active in this space include La Trobe Financial, Liberty Financial, Thinktank and Firstmac, as well as a small number of credit unions and non-bank lenders with appetite for SMSF security.
Each lender has different policies around minimum fund balance, eligible property types, maximum LVR, and willingness to lend on commercial versus residential SMSF property. Some have more appetite for rural-residential or higher-value properties. Others are more focused on metro residential.
A specialist SMSF broker will be accredited with multiple lenders in this space and can identify which lender is the right fit for your fund’s specific profile, rather than simply sending your application to the lender with the lowest advertised rate.
How Rovo Finance helps with SMSF loan reviews
At Rovo Finance, SMSF lending is one of our three core specialisations. We work with SMSF trustees across the Hills District and Greater Sydney who are looking to review their existing loan, refinance to a better rate, or explore SMSF property investment for the first time.
For legacy SMSF borrowers, the review process starts with a free strategy call where we assess your current loan, your fund’s financial position and whether refinancing is likely to produce a meaningful benefit. If it is, we identify the right lender, manage the application process and coordinate with your accountant and solicitor to ensure the bare trust structure is handled correctly.
There is no cost to you for this review. Our fee is paid by the lender when the loan settles, and we will always be upfront if there is a situation where that is not the case.
