If You Borrow in Your SMSF Does that Reduce Your Borrowing Capacity in Your Own Name?

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We have all heard that it is now harder to get an investment loan than it was a few years ago.  But some of Australia’s most affluent professionals have expanded their property portfolio by having properties both within an SMSF and in their own name.

According to Digital Finance Analytics 30 per cent of their Exclusive Professionals own property in both tax structures to promote their wealth.

Whereas the same research showed only 13 per cent of average property investors also hold property in their SMSF.

Given the government clampdown on investment lending, how can the average Australian property investor borrow both ways?

In many cases, the answer is relatively simple.

In many instances, when a lender assesses an individual’s (or household’s) ability to borrow they now assume that all your loans have interest rates of at least 7.25 per cent.

This is one of the factors that is making it harder-and-harder to get a loan; unless you are loaded, if the bank has to assume interest rates of at least 7.25 per cent, even if you have a good rental return, at some point the bank will calculate that you don’t have enough income to service such debt.

Borrowing within your SMSF however is different.  Because the property is held within the Holding Trust that your Chan & Naylor accountant will have set up and because this Trust is held within an SMSF then most banks can see this as a separate entity to the individual beneficiaries – accordingly it allows the banks to reset how they assess borrowing capacity.

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When a bank assesses your ability to borrow within your SMSF, they generally only look at the borrowing capacity of that SMSF NOT the household behind it.

One big lender sees this as a big growth market and is pouring a lot of resources into SMSF lending.

SMSF lending tends to have higher rates and fees.  But it is one way that allows investors looking to get on to increase their property portfolio.

Superannuation can be a tax-effective means of preparing for your retirement. Borrowing within a SMSF can really help you grow your retirement funds. But, before you sign up for your loan, make sure that you talk to your C&N Finance expert. Talk to us today. Dial 1300 306 868 now or leave us a message to return your call for free phone consultation.


Graeme Salt - Chan & Naylor Finance

Graeme Salt

Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer.

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