Richard Chesworth

The rising interest rate environment has highlighted the importance of having borrowing structures in an SMSF that can be comfortably supported over time, not lending that has been stretched to extremes, says Richard Chesworth, SMSF lending specialist at Bluestone Home Loans.

Chesworth says success in SMSF lending is not measured by how much a client can borrow at settlement, but whether the loan still works when conditions change.

“Some lenders are pushing SMSF loans at 90 percent LVR, often framed around avoiding lenders mortgage insurance or entering the market sooner. That strategy may suit individuals for their home finance or purchasing an investment property, however in the concessionally taxed environment of superannuation at 15 per cent, high gearing may deliver a poor outcome to the SMSF,” Chesworth says.

“At such a high gearing level, rent and contributions may often be fully absorbed through interest and holding costs of the property. Until the asset experiences significant income growth, the income streams are directed to meeting the borrowing obligations, rather than building retirement savings.”

He says SMSFs operate under tighter constraints than personal investment loans. Contribution caps are fixed, cash flow buffers are limited, and there is little room to manoeuvre if circumstances change.

“At very high LVRs, even small shifts in interest rates, vacancies or expenses can put pressure on the fund and meeting the SMSF’s objectives.

“Lower LVRs, on the other hand, are more likely to deliver stronger rental coverage, reduced sensitivity to rate movements, greater resilience during vacancies, and a clearer path toward neutral or positive cash flow.

“Furthermore, once positively geared, the SMSF trustee has greater flexibility to support the diversification needs of the SMSF.”

Chesworth says that brokers have a crucial role to play to ensure SMSFs end up with the right structure for their members.

“Pricing still plays a role, but in the current environment, brokers are using pricing strategically.

“Rather than chasing the lowest headline number, brokers are looking to lending partners who provide value in delivering on their customers’ SMSF needs. Equally many are looking for pricing that genuinely supports serviceability and cash flow, without forcing clients into higher leverage just to make the deal work.” 

According to Chesworth, this thinking underpins Bluestone’s current 0.25 percent SMSF campaign.

The campaign is designed to help brokers:

• improve serviceability outcomes for SMSF clients
• ease repayment pressure as rates rise
• and support moderate LVR strategies that are built to last

“Our approach to SMSF lending is not about pushing maximum leverage or chasing short‑term trends. In this market, pricing has to work hand in hand with structure and we are seeing brokers using pricing to strengthen serviceability, not to justify unnecessary gearing.

“We believe that mortgage brokers who work with SMSF trustees are ideally placed to help them make borrowing decisions they can live with.”

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