We get asked this question a lot – and while at first it may seem to be because the banks, the reality in this instance is that the blame is mostly on the regulator. What is going to define the cost of a loan to a lender is the amount of capital they will have to hold to lend you that money. Broadly speaking the regulator is going to determine how much the lender has to keep on their balance sheet for each dollar lent. So for a self managed super fund loan the regulator is going to require the lender to hold more money on their balance sheet than they would for a standard residential loan.
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A very controversial little video today, why are self-managed super fund loans more expensive than normal standard residential loans? That’s a question we get a lot, and look, I’m just as happy as anybody else to do a bit of bank bashing when I can, and I will do that, my clients will confirm that for you, but in this instance, I have to say that the blame lies mostly with the regulator. So what is going to define the cost of a loan for the lender is essentially defined by the amount of capital that they need to hold to lend you that money. So if the bank needs to have $0.10 on their balance sheet to lend you $1, then the cost of holding that $0.10 is essentially the cost of the loan. They might have to raise up $0.10 from deposits that they have to pay insurance on, they might raise up $0.10 from the money market where they have to pay people interest on the $0.10.
Whatever the case is, that money they have to keep in order to lend you the $1 is going to be the cost for the bank. The regulator is defining for most lenders and it’s a bit more complicated, but just to keep it conceptual, the regulator is going to define how much money one lender has to keep on the balance sheet to lend $1 to a particular entity.
For self-managed super fund loans, the regulator is expecting the lenders to hold more money on the balance sheet than they do for a standard residential loan, and what that does, quite simply, is that’s increasing the cost of that dollar that the bank is lending to your self-managed super fund versus the cost of that $1 that the bank is lending to yourself, and what do the banks do? Well, they’re certainly not going to absorb that cost for you, they’re just passing it on, and that’s essentially why you would find that a residential loan for a self-managed super fund is more expensive than a residential loan for a standard property.
Now, you move that to the commercial space and you’re borrowing for a commercial property and the regulator is already asking the banks to hold more money on their balance sheet for a commercial loan regardless of whether it’s a super or not. That’s why commercial loans are actually a bit more expensive than residential loans. You move to superannuation, the discrepancy between the amount of capital they’ve got to hold when it comes to a commercial property is much, much less, and therefore, you’ll find that the rates that you can secure for a commercial property inside or outside of superannuation are going to be much closer, and that’s why, so it’s not that bank’s are being any more greedy than usual, and they are, it’s a matter of the regulator and what is being imposed on them, and the cost that is being created by the regulator.