SMSF home loans

How the structure works

Setting one up is not a solo exercise. The fund's trust deed has to permit borrowing, a separate holding trust and its trustee have to exist before the property is bought, and the sequence matters: acquiring in the wrong name or in the wrong order is expensive to unwind and can have consequences for the fund. In practice that means your accountant and a solicitor are involved from the start, and the lending is arranged around the structure they set up rather than the other way round.

Borrowing inside a fund is done through a limited recourse borrowing arrangement. The property is held in a separate trust, the lender's recourse is limited to that asset rather than the rest of the fund, and the fund makes the repayments. Setting it up correctly involves your accountant and usually a solicitor, and getting the structure wrong is expensive to unwind.

What lenders look at

The assessment is on the fund rather than on you personally: what it holds, what goes into it through contributions and rent, and whether it can service the loan with a margin left over. Deposit requirements are generally higher than for a personal purchase, and most lenders want to see liquidity left in the fund after settlement rather than every dollar committed to the property. The specific minimums differ considerably between the lenders that offer this at all, and there are far fewer of them than for standard home lending, so which lender the file goes to shapes what is possible more than it would elsewhere.

The assessment is on the fund rather than on you: what the fund holds, what goes into it, and whether it can service the loan with a margin. Deposit requirements, minimum fund balances and liquidity requirements are all lender specific.

What the fund can and cannot do with the property

Residential property held by a fund generally cannot be lived in or rented by you or a related party, and the restrictions on what can be done to the property while it is under a limited recourse borrowing arrangement are tighter than most people expect: repairs and maintenance sit differently from improvements that change the character of the asset. These are superannuation law obligations rather than lending conditions, they are enforced, and the Australian Taxation Office is the authority on them alongside your accountant.

There are rules about who can use the property and what can be done to it, and they are stricter than most people expect, particularly around related parties and improvements. These are superannuation law questions rather than lending questions.

Whether it suits you at all

This is a strategy question before it is a lending question, and it interacts with your retirement planning, your fund's existing assets and your tax position. A broker can tell you what is fundable. Whether it is appropriate is a conversation for your accountant or licensed financial adviser, and this page is not advice.