SMSF residential loan ban drives late borrowing surge
Australia’s incoming ban on SMSF borrowing for residential property has produced a sharp final surge in lending activity, with Australian Finance Group (AFG) reporting that limited recourse borrowing arrangement (LRBA) volumes nearly doubled in the two months after the government moved to introduce the restriction.
AFG chief executive David Bailey said some lenders were processing close to five times their usual monthly SMSF loan volumes in the lead-up to the change. Across AFG’s network of 4,200 mortgage brokers, LRBAs had historically represented about 2–3 per cent of home loans, but the share had risen to around 5 per cent in August.
The prohibition, which takes effect from Monday, applies to borrowing by SMSFs to buy residential property. It formed part of a deal with the Greens over the Labor government’s capital gains tax legislation.
Deadline brings forward investor activity
Bailey said the deadline had accelerated purchases by SMSFs that had already moved super savings into cash and were waiting for a suitable property. He also said the rush had supported residential prices in a falling market by bringing forward investor demand.
Before changes announced in the May federal budget to negative gearing and capital gains tax, investment loans accounted for about 37 per cent of lending written by AFG brokers. AFG had expected the share of new investment loans to fall to 20–25 per cent, but Bailey said the LRBA deadline helped keep it at about 33 per cent.
From Monday, Bailey expects that temporary boost to end. He also said purchasers facing the deadline had acted with greater urgency and, in some cases, bid more aggressively.
Commercial property draws more SMSF interest
Residential property has historically dominated LRBA borrowing, accounting for about 85 per cent, compared with 15 per cent for commercial property. However, commercial property and other investments including shares are excluded from the ban, and AFG is already seeing more enquiries about commercial options.
Bailey said some borrowers who no longer expected to secure a residential property within the remaining window were considering commercial property instead. Commercial LRBAs generally carry higher interest rates, although he said the gap with residential LRBA rates had narrowed from about one percentage point to roughly 0.5–0.9 percentage points because of competition.
The latest Australian Taxation Office statistics cited in the report showed around 70,000 SMSFs had an LRBA in the 2023–24 financial year, covering both residential and commercial property.
The Australian Finance Industry Association, which represents about 75 per cent of non-bank lenders that typically provide LRBAs, said its members wrote more than 16,000 new residential loans to SMSFs in the year to June 30, backed by $10.3 billion in security. That was well above the 4,000 residential loans Treasurer Jim Chalmers had estimated when the government announced the ban.
Aware Super general manager of advice Peter Hogg said the change would leave borrowing for property within SMSFs available only for business real property under a specific definition. He said most SMSFs wanting to acquire new residential property would now need enough money to buy outright. Hogg also said Aware Super had seen a 38 per cent increase over the past year in people winding up SMSFs and moving to the fund.
SOURCE ATTRIBUTION:
Based on reporting by The Australian Financial Review, published 10 August 2026. Source: www.afr.com
