Genworth pulls the leash on SMSF loans

Mortgage insurance company Genworth will make loans for self-managed superannuation funds harder to access.

Bridget Sakr, chief commercial officer of Genworth, yesterday advised lenders that an SMSF must hold minimum net tangible assets of A$150,000 or more prior to entering a loan. The insurer did not have any policy on minimum assets before.

The fund must also have a minimum liquid asset balance of 10 per cent of the total debts of the SMSF (including the loan amount) after the loan transaction is complete. (Genworth defined minimum liquid asset as interest divided by dividend earning assets).

The insurer said that off-the-plan purchases and new properties that have been completed for less than 12 months were no longer acceptable as security.

It defined a "new property" as "any property (including any house, unit, villa or townhouse) that has been fully completed for less than 12 months and/or has not been previously sold since construction."

Off-the-plan purchases were previously acceptable to Genworth.

The changes apply to all new insurance applications and loans from 19 December 2013.

Genworth's policy change may be a response to rising unease over the apparent rush by SMSFs to consider borrowing to buy residential investment property in the context of debate over the nature of any property bubble in Australia.

In September, the Reserve Bank of Australia observed that "a range of banks have been growing their residential property lending to self-managed superannuation funds rather strongly. "

"Because they can expose lenders to different risks, including reputational risks, these sorts of expansions into less familiar markets or products require sufficient due diligence before they are undertaken."

The insurer's decision also highlights that the chief determinant of credit supply in Australia is the risk appetite of the mortgage insurance companies. Genworth is the dominant provider in the sector.

Genworth may also be looking ahead to the more intense scrutiny it can expect when (and if) its sells a 40 per cent stake and lists on the ASX some time next year.