An unbranded letterbox flyer prompted NAB’s decision to cease all SMSF lending for residential property earlier this year, says Gemma Dale, head of SMSF solutions in the bank’s self directed wealth division.
The unaddressed ‘junk mail’ advertisement arrived in the mail at Dale’s Neutral Bay home. “It said ‘Why wait for your super to double in value over 10 years, when you can borrow to invest in property in your super and have it double in four years?’” she says.
According to Dale, it offered help with the entire process, ranging from setting up the SMSF through to buying the property.
“With no AFSL number, no branding or anything. When you start seeing that stuff, you feel like it’s gone a little bit beyond the sphere of people who are prudently engaging in this area,” she says.
Dale reveals that soon after, NAB self directed wealth held an internal working group on the issue, which led to a decision in May this year to cease all lending to SMSF customers intending to purchase residential property.
“The problem with lending [inside super] is that…it’s not a regulated financial product.
“We had bankers who were writing loans, with absolutely the best of intentions for their customers, but often the customers have had some quite poor advice from someone, or just made some poor decisions, whatever it might be.
“And there was no obligation for the banker to completely revise the strategy or to give them advice, which they legally can’t do anyway,” Dale says.
She emphasises that it had not spotted any obvious risks inside the NAB group, which has around 100,000 SMSF clients. Of these, it knows that at least 20 per cent of clients have received some financial advice from inside the NAB network.
Some of the remaining 80 per cent of clients may also receive financial advice from external planners, though this level of detail is not currently available.
“We didn’t see anything that shocked us and prompted us to say ‘we need to fix this’.
“But you’re conscious when you’re in an area where people are doing something they’ve never done before, it’s a complex regulatory environment, and they’re not necessarily receiving high quality advice, or any advice at all, you want to be more prudent than you would be with something else,” Dale says.
The bank’s decision was further endorsed by the Australian Prudential Regulation Authority (APRA), which had also at the time “started making noises about winding back investment lending in general”.
“So we just made the decision not to do it [in cancelling lending inside SMSFs for the purchase of all residential property] which APRA was really happy about,” Dale says.
While the residential lending has been cancelled to customers as of 1 May this year, customers who have an existing SMSF loan for residential property are still supported. It also continues to offer SMSF lending for the purchase of commercial property.