It is becoming more common for me to see a customer with more than one super fund who wants to apply for SMSF finance for a property purchase.
They may have kept their original fund (usually Q Super or an Industry Fund) and set up a Self Managed Super Fund, maybe with their partner as the other member as a second fund. Reasons for retaining the original fund may be due to employer benefits or perhaps the insurances in that fund are unable to be replicated. Whilst this strategy might fit nicely from an advice perspective, if the customer decides to enter into a Limited Recourse Borrowing Arrangement to purchase a property using the SMSF, lenders will see things a little differently.
Acceptable Income from a Lenders View for SMSF
.Essentially the only forms of income that can be used to prove the fund/trustes can afford SMSF Finance to purchase a property are:
Contributions to the fund from the members/members employers
Return on investments in the fund – including cash
Proposed rental return from the new property
When the contributions are not made to the SMSF directly (as with QSuper contributions must go to that fund), most lenders will not use this income as evidence the loan repayments can be met. This can be difficult when the higher income earner( or the highest amount of contributions) has kept their original fund.
To date I have been able to place these with a selection of only three lending products to choose from. That is, however, as long as I can provide confirmation from ‘original fund’ that partial roll overs are permitted “without restriction and at anytime”.
Now if you are a member of QSuper or know someone that it is, this can not be done. Partial roll overs are only allowed once per year. Only one of the three lenders will still accept these contributions as income to prove the loan can be repaid. This is only on the proviso that there is a cash left in the SMSF, to cover repayments on the loan for at least a 12 months period. This is of course, excluding any other members contributions and the rental income.
Whilst this is a conservative approach, it is still ensuring that the fund can ‘survive’ the repayments with only an annual contribution.
I am hoping as this sector continues to grow and lenders develop some comfort with LRBA lending, that more lenders will adopt the same approach.
If you’d like to discuss your particular (or your client’s) lending needs or are currently dealing with a finance provider who can’t quite get their head around this concept, please feel free to get in touch to discuss 0406 880163.