In a recent interview with SMSF Adviser editor Miranda Brownlee, Chief Lending Officer Cory Bannister discusses La Trobe Financial’s recent win at the 2022 SMSF Awards, what it takes to make a successful SMSF loan product and what property market changes may mean for SMSF investors and borrowers over the next year.
Reflecting on how La Trobe Financial has maintained its competitive SMSF offering over the past decade, Cory said that “consistency over time is one of the key things the market really respects and looks to, and a key driver is being able to obtain funding in this environment.” And it is through this access to funding – specifically La Trobe Financial’s $8.5 billion retail credit fund – that La Trobe Financial has been able to continue to fund borrowers through all market and economic cycles, particularly during periods of volatility and choppiness which are prevalent in the market now.
When asked what interest rate increases mean for the SMSF sector, Cory stated that even though we are seeing these rate increases, it is being offset by increasing rents. “There’s record low levels of vacancy rates – in some capital cities, less than 1%. Currently, that’s driving double digit growth in rental returns, annually”. This, combined with a softening in property prices, is resulting in a very attractive proposition for SMSF investors.
Predicting how far prices would soften, Cory stated: “Our house view has been that property prices would retrace between 10% and 15%. As we sit here today with close to 10% already, the upper bound of that range appears to be reasonable.”
Cory notes however that a range of factors, including a slowdown in new building permits and a tilt towards full-migration, will likely “put a floor on house prices and also support those rental returns”.
Cory further reflected that even though the current environment lends itself to SMSF borrowers looking at their interest rates and loan providers “we would caution borrowers not just to focus solely on price, particularly in the SMSF loan space, because it is quite complex”.
“There are a few barriers with what you can do with [SMSF] transactions. For instance, one thing that a lot of borrowers aren’t aware of is that when you refinance, you can’t access the equity that’s been built up through those assets in your SMSF. So, you’re refinancing on a dollar for dollar basis, purely for price alone – you can’t get the equity out that you’ve grown over time.”
“The second and third things that we would ask borrowers to think about is what are the lenders rules around annual reviews. For instance, does the property need to be valued every year and therefore is there a need to make additional contributions if the valuation changes, particularly in the environment we’re looking to at the moment, where house prices are softening slightly.”
To listen to Cory’s full interview, click here.
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