The big banks are killing SMSF lending. Why?
So Westpac shook the bird-cage a bit last week when it announced that it was no longer lending to SMSFs to purchase property. It’s also not doing commercial loans anymore either.
SMSFs are reasonably new players to the property space in Australia, and I don’t think the sector had reached anywhere near its full potential or clout. But these changes will hamstring the segment, especially if smaller lenders follow suit:
Westpac is set to rock the increasingly nervous property market by withdrawing new loan offers to self-managed superannuation funds looking to invest in property.
…The move has shocked mortgage brokers and financial advisers, who act as intermediaries between borrowers and the banks, but complements a change in lending strategy the banks have rolled out in recent weeks.
…“We continually review our products and services to ensure they meet the requirements of our customers,” a Westpac spokesman said.
“In order to simplify and streamline our self-managed super fund products, we will be withdrawing from sale our SMSF home loan product and business lending to SMSFs, effective Tuesday 31 July 2018.”
The withdrawal from SMSF lending applies across the group’s regional banking subsidiaries, after St George last week announced its intention to abandon the controversial lending activity.
…Westpac is also tightening the terms of loan agreements that will apply to its existing portfolio of SMSF borrowers.
…Also, borrowers will no longer be able to extend their interest-only periods when their contracted period expires.
Westpac’s exit means Commonwealth Bank will be the only major institution lending to SMSFs after July 31.
Got to love a good financial sector euphemism, don’t you? “In order to streamline and simplify our products…”
“Dear John, I’m leaving you and I’m taking the kids. I’m looking to streamline my relationships.”
So what’s really going on here?
My first instinct was obviously this is APRA again. APRA has been trying to get the banks to tighten up their loan books, and this just felt like another one of those measures.
But look closely and it’s not. APRA hasn’t ever said anything about SMSF lending.
And when you think about it, you’d have to think SMSFs would be some of the most capitalised borrowers in the country. You’re generally not gearing your SMSF into property unless you’ve got a fair bit to work with. I don’t have the data on that, but that’d be my guess.
So I don’t imagine APRA was all that fazed about SMSF lending.
So what is it then?
It might have something to do with the Royal Commission. There were a few stories about useless financial planners gearing their clients into SMSF lending for the fat commissions.
But killing the whole segment just to weed out the work of a few bad planners seems a bit over the top, doesn’t it?
So I don’t know. It’s a bit of a mystery.
But I’ve got one theory for you. The performance results for the last financial year are in. This is the top super funds in the country:
And then this is the worst:
Would you look at that? Westpac takes out two of the worst seven. All the big banks are represented.
So maybe the banks just don’t want people realising they can do it by themselves.
Maybe they don’t want people thinking that there are other options, because right now, you really would take any other option.
That’s a theory, but could the big banks really be that shameless?
Maybe. But then I wouldn’t trust a big bank as far as I could throw one.