SMSF Home Loan Ban Could Dent New Housing Supply

Non-bank lenders and brokers warn the government's residential SMSF borrowing ban will cut new housing starts and strand borrowers already mid-deal.

The federal government's decision to ban new residential limited recourse borrowing arrangements (LRBAs) inside self-managed super funds (SMSFs) from 10 August 2026 is sending shockwaves through the mortgage market. Non-bank lenders and mortgage brokers are warning the change will reduce new housing supply, leave some borrowers stranded mid-process, and erode the competition that keeps the major banks honest on pricing.

The ban — secured through Labor's agreement with the Greens — prohibits SMSFs from entering into new residential property borrowings from 10 August. Existing LRBAs are grandfathered and commercial SMSF borrowing remains unchanged. [The Adviser](https://www.theadviser.com.au/lender/48632-lenders-brokers-say-smsf-resi-ban-will-reduce-supply) gathered responses from multiple non-bank lenders and brokers, and the message was consistent: the policy will hurt supply without improving affordability.

New Home Builds Are Directly in the Crossfire

The most immediate concern is what happens to residential developments that depend on SMSF presales to stack up. Without those committed buyers early, developers often cannot secure construction finance — and projects that don't stack up don't get built.

Firstmac, the Brisbane-based non-bank lender, has laid out its direct exposure. Chief executive Marie Mortimer said roughly one-fifth of Firstmac's SMSF lending supports brand-new stock, translating to approximately 1,500 SMSF loans per year that fund new developments or off-the-plan purchases.

"But any projects that have SMSF presales won't go ahead," Mortimer said. "It is not possible to see anything else that could replace it in this legislative climate. That's why proper consultation needed to be done before rushing these changes through."

Mortimer made clear the damage isn't limited to SMSF borrowers alone. "We expect the ban to result in a sizeable reduction in new housing supply. The effect is magnified as, if a development fails due to lack of SMSF, then it is also the non-SMSF purchases that don't proceed either. You cannot build two-thirds of a building. Australia needs all the help it can get with housing supply. We don't have time to trial and error this."

Mel Falanga, branch principal at Yellow Brick Road Home Loans Leppington, is already seeing this play out in his current book. He has around 10 to 15 SMSF clients with pre-approvals, with roughly half looking at newly built properties. "I am actually talking to a developer who is trying to assist one of my SMSF pre-approvals with a purchase. Unfortunately it appears that the development will not become available within the 45 days so that will be a missed sale opportunity for the developer," Falanga said. "For the new developments, particularly high-rise developments coming to market — what will be a big loss in terms of potential sales."

Retirement Plans and Middle-Income Borrowers in the Crossfire

The common narrative around SMSF investors positions them as wealthy speculators exploiting a tax advantage. The lenders closest to this market say that picture is fundamentally wrong.

Mortimer challenged the assumption directly. "SMSF borrowers are not wealthy people. They are people who do not have a deposit outside of super and are unable to purchase a home. SMSF borrowing offers their only hope of buying a home for their retirement. This change will consign a segment of the community to being lifelong renters."

She also pushed back on the idea that SMSF lending carries elevated risk. "SMSF borrowers have an almost-zero default outcome," Mortimer said. "The banning of SMSF by contrast will force these people to consider forms of investment such as commercial property that they may not understand — this may present a riskier proposition for them."

Barry Saoud, CEO of mortgages and commercial lending at Pepper Money, described the change as "a meaningful shift in the market" and highlighted the human cost to borrowers already mid-process. "There are transactions across the pipeline — signed contracts, approved loans and scheduled settlements — now facing a compressed time frame. These deals reflect real customers who have committed and incurred costs under a well-established framework, and clear guidance is needed on how these borrowers will be supported through the transition."

Bluestone Home Loans' head of specialised lending, Richard Chesworth, described SMSF borrowers as among the most reliable in the mortgage system. "SMSF borrowers, across both our residential and commercial portfolios, are typically well capitalised, take a long-term view, and operate with a clear investment mandate. This tends to translate into disciplined borrowing behaviour over the life of the loan, and a comparatively strong-performing segment with low levels of arrears and defaults."

Self-employed-focused lender RedZed pointed to the contradiction at the heart of the policy. "On one hand, there is a clear government objective to increase housing supply; on the other, a funding mechanism that has supported part of that supply is being withdrawn."

A Rush to Lock In Deals Before 10 August

With the deadline approaching fast, brokers and lenders are both reporting a surge in applications from SMSF borrowers trying to settle existing deals before the door closes.

Bluestone's Chesworth said: "We're seeing a short-term increase in applications from brokers representing SMSF borrowers looking to lock in and close out active deals ahead of the deadlines."

RedZed similarly reported "increased urgency from brokers and customers to progress transactions ahead of the August 10 change," and announced a streamlined refinance process for customers with existing SMSF lending who may want to review their current arrangements.

Mortimer also raised a sector-wide concern, warning that the combination of the SMSF ban and the broader negative gearing and CGT changes "is likely to reduce the size of the non-bank financial industry by around one-third", weakening the competitive pressure that has historically kept the major banks accountable on pricing.

If you hold SMSF borrowings or are actively considering [investment property financing](/home-loans/investor), the coming weeks are critical. Speak to a broker who understands the SMSF lending space before the August deadline. You can also use our [borrowing power calculator](/calculators/borrowing-power) to understand what your options look like inside and outside of super, or check our [refinancing hub](/home-loans/refinance) if you're looking to review an existing SMSF loan structure.