Westpac set to stop property loans for SMSFs

Westpac will stop new loan offers to self-managed superannuation funds for investing in property.

The nation's second largest mortgage lender, and its subsidiaries Bank of Melbourne, St George Bank and BankSA, will withdraw from lending to small super funds at the end of July.

It follows a review of funds' prospects and its exposure to the sector.

The move has shocked mortgage brokers and financial advisers, the Australian Financial Review reported.

All lenders have been tightening their lending to self-managed funds, in response to tightening regulatory interventions, tougher investment and property markets and the shift from investment to principal and investment loan products.

"In order to simplify and streamline our self-managed super fund products, we will be withdrawing from sale our SMSF home loan product and business lending to SMSFs, effective Tuesday 31 July 2018."

The bank advised continue to service customers with existing loans through switching loans and extending loan maturity. 

More than 600,000 investors have more than $700 billion invested in SMSFs, with many self-employeds also investing in their work places via their business factories, warehouses or consulting rooms.

A recent ASIC review found 90 per cent of funds failed to comply with the "best interests" test and other legal obligations.

"The strategy of gearing through an SMSF to invest in property, which is being actively promoted by 'property one-stop shops', is high risk," the ASIC report noted.