APRA warns on mortgage-backed SMSFs

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The Australian Prudential Regulation Authority (APRA) has issued a letter to approved deposit-taking institutions (ADI), saying the capital treatment of loans to SMSF’s secured by residential mortgage may have a different loss profile to standard loans, according to News Ltd.

The authority says that, for the purposes of its capital adequacy standard, APS 112, SMSF loans are "relatively more complex" than standard mortgages.

"As such, SMSF loans may have a different and potentially higher loss profile in comparison to standard loans.”

It also pointed out that the super fund is not the owner of an asset purchased with borrowed funds - it’s the beneficiary under a separate trust structure.

APRA also says SMSF loans involve no recourse beyond the asset being funded.

They say it’s an ADI's responsibility to ensure that ‘it has given detailed consideration to the particular risks of lending to a superannuation fund, and that its application process verifies all relevant compliance matters that might impact on the ability of the SMSF to service the loan’.

The letter adds to the APRA to the number of regulators taking a closer look at the SMSF loan market.

In November, the ATO issued a notice to trustees of self-managed funds warning them that some borrowing arrangements did not meet the requirements of superannuation legislation.

 

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