top of page

Demystifying SMSF lending: The critical difference you must know

  • Writer: Jenny Fentino
    Jenny Fentino
  • Nov 10
  • 2 min read

The self-managed super fund (SMSF) lending market is one of the fastest-growing sectors in property investment. However, as Mary Odisho, General Manager at Flexdoc, emphasises, approaching an SMSF lending application requires a fundamentally different mindset than a traditional residential mortgage.


Understanding these differences is key to successful property investment through your super.


Why SMSF Loans Are Commercial


The most critical takeaway is that SMSF loans are treated as commercial loans, regardless of whether you are purchasing a commercial or residential property [01:27]. Mary explains this classification is due to the nature of the borrower—a trust and a company—rather than the asset itself [01:19].


This commercial nature dictates the strict lending criteria, which go beyond simple income verification. Lenders are primarily concerned with the fund’s overall health and compliance.


The Three Key SMSF Lending Criteria


When assessing an SMSF loan, lenders scrutinize three main elements:


  1. Fund Size and Deposit: Lenders want to see a sufficient balance in your super fund. While a 90% Loan-to-Value Ratio (LVR) is possible with some lenders, the typical maximum borrowing sits around 80% LVR (20% deposit) [03:18].

  2. Liquidity Buffer: You cannot simply "go to the max." The fund must retain a liquidity buffer—an amount of capital left over after settlement to cover unexpected costs and ensure the fund can meet its obligations. This is a key difference from residential lending [03:37].

  3. Contributions and Rental Income: Servicing the loan relies on the property’s rental income and the member’s historical or proposed super contributions [04:31]. It’s important to note that rental income is typically shaded by lenders, meaning they may only use a portion of the proposed rent when calculating serviceability [05:35].


Another distinction is the interest rate. Commercial lending rates reflect the risk of the transaction, meaning the rates on an SMSF loan may be higher than those advertised for owner-occupied residential properties [09:37].


Build Your Expert Team


Ultimately, SMSF lending requires a multi-step process and patience [06:12]. Mary advises that before moving forward, you must consult your accountant and financial adviser to ensure this strategy aligns with your personal goals [06:38].


Due to the specialised nature, the right team is crucial—specifically, a broker and adviser who are highly experienced in the SMSF space [06:53]. Remember to read our SMSF disclaimer before acting upon any educational material.

Video Source: What is SMSF lending and why is it so popular? (w/ Mary Odisho) by Flexdoc: http://www.youtube.com/watch?v=YXfujmpRB7A



 
 
bottom of page