SMSFS that carry loans to acquire assets should be checking if they can be refinanced as some lenders will take a set-and-forget approach to servicing them, potentially leaving the fund worse off over time, according to a non-bank lender.
Bluestone head of specialised distribution Richard Chesworth said the withdrawal of banks from the SMSF lending market in 2019 did not result in loans that were current at the time from ceasing and funds with those loans still in place are likely being under-serviced.
“Some SMSF loans have become set and forget for the banks, which works well for them, but as legacy products they are not actively serving that market nor passing on rate cuts,” Chesworth told selfmanagedsuper.
“This means there are opportunities to refinance and in some cases where this takes place, SMSF investors can save $7000 per annum.
“Where else within a fund can you get that level of money with little effort and acts as a benefit year on year?”
He added the departure of the banks and the need for more funds to consider refinancing LRBAs has led to the arrival of some sub-par lenders and just because an SMSF could refinance with them, it did not mean they should.
In particular, he noted some lenders were restricting loans based on contributions to the concessional contribution cap and had yet to introduce changes to remove limits on building heights.
He added SMSF lenders may be unaware of these differences and while brokers knew of the issues, they were still reliant on financial advisers to provide advice as they were unable to do so under current licensing laws.
“There is a bit of refinancing complacency and brokers are leaving this on the table while financial advisers and accountants are not aware of the issue,” he said.
“Given the benefits, there are not as many relationships between brokers and advisers as we would expect.
“Brokers have homed in on home loans and financial advisers are not always open to talking about lending debt, despite their being $27 billion in LRBAs in total.”
