For property investors considering buying property through an SMSF, that difference naturally raises an important question: why?

The short answer is that SMSF loans are more expensive by necessity — not because lenders are arbitrarily charging more, but because these loans operate under a very different legal, regulatory and risk framework.

This article explains those differences in plain English, outlines the real costs behind SMSF lending, addresses common misconceptions, and helps investors decide whether SMSF property loans are worth it.

When someone buys property through an SMSF, they are not taking out a regular home loan.

SMSF property purchases must be funded through a specific structure known as a Limited Recourse Borrowing Arrangement (LRBA). This structure is tightly regulated under superannuation law and exists to protect retirement savings.

Under an LRBA:

• The property is held in a separate bare trust

• The lender’s rights are limited to that single asset

• The borrower is not the individual, but the super fund itself

• Strict rules govern how the property is purchased, held and managed
  

These differences matter because they change the risk profile, compliance burden and operational complexity of the loan — all of which directly affect pricing.

One of the biggest drivers of cost is the limited number of lenders willing and able to offer SMSF loans.

Compared to standard residential lending:

• SMSF loans require specialist legal, credit and compliance expertise

• Ongoing monitoring is more complex

• Regulatory risk is significantly higher
  

As a result, many lenders simply choose not to operate in this space at all.

With fewer participants, SMSF lending does not benefit from the same scale efficiencies or competitive pressure seen in mainstream home loans. This alone explains part of the pricing difference when comparing SMSF loans to standard mortgages.

SMSF loans are subject to far stricter oversight than standard property loans.

Lenders must ensure that:

• The loan complies with superannuation law

• The structure meets ATO requirements

• The purchase does not breach sole purpose rules

• Ongoing compliance is maintained throughout the life of the loan
  

This requires:

• More documentation

• Specialist legal review

• Additional checks before approval

• More complex settlement processes
  

All of this adds time, expertise and cost — and those costs must be priced into the loan.

In a standard home loan, a lender can generally pursue the borrower’s broader assets if something goes wrong.

In an SMSF loan, that is not the case.

Because SMSF loans are limited recourse, the lender’s recovery is restricted to the specific property held in the bare trust. Other assets in the super fund — or outside it — are protected.

From a lender’s perspective, this materially increases risk. Even if the loan-to-value ratio is conservative, recovery options are narrower and more complex.

Higher risk requires higher capital allocation and stronger buffers, which directly impacts interest rates when comparing SMSF loans to standard residential loans.

SMSF loans typically allow lower borrowing limits than standard property loans.

While exact limits vary, it is common for:

• Residential SMSF loans to be capped around 70–80% LVR

• Commercial SMSF loans to be capped lower again

Lenders also assess:

• Liquidity inside the super fund

• Contribution capacity

• Rental income sustainability

• Ongoing compliance costs
  

These conservative settings exist to protect the fund, but they also reduce lender flexibility and increase the cost of capital — another reason SMSF loans are priced higher.

“Lenders are just charging more because they can”

In reality, SMSF loans are more expensive because they are more complex, risk-weighted differently, and costly to administer. Pricing reflects structure and regulation, not opportunism.

“SMSF loans are riskier for borrowers”

SMSF loans are not inherently riskier for trustees — in fact, many restrictions are designed to reduce risk inside super. The higher risk sits largely with the lender due to limited recourse and compliance exposure.

“SMSF loan rates should eventually match home loan rates”

Because the structural differences are permanent, SMSF loan pricing is unlikely to ever fully align with standard residential loans, even in favourable rate environments.

This is the most important question — and the answer depends on the investor’s long-term strategy.

For the right investor, buying property through an SMSF can offer:

• Exposure to property growth inside super

• Rental income flowing into a concessionally taxed environment

• Greater control over retirement assets

• Portfolio diversification within super
  

In these cases, higher borrowing costs may be acceptable when viewed over a long investment horizon.

However, SMSF property loans are not suitable for everyone. They require:

• Strong cash flow management

• Long-term commitment

• Ongoing compliance discipline

• A clear understanding of costs and constraints
  

The higher price of SMSF loans is not a penalty — it is the cost of accessing a specialised structure within a highly regulated retirement system.

Because SMSF lending is so specialised, many investors choose to work with lenders who focus specifically on this space.

Specialist SMSF lenders understand:

• LRBA structures

• Superannuation compliance requirements

• Property-specific SMSF risks

• How to assess SMSF borrowers holistically
  

This expertise can make the process clearer, more efficient, and less stressful — particularly for investors actively comparing SMSF loans and trying to avoid costly mistakes.

SMSF loans are more expensive than standard property loans for clear, structural reasons.

They involve:

• Fewer lenders

• Higher regulatory oversight

• Limited recourse risk

• Conservative lending settings
  

For investors buying property through an SMSF, these costs are not arbitrary — they are the price of operating within a tightly regulated superannuation framework designed to protect retirement savings.

For those with the right strategy and long-term outlook, SMSF property loans can still play a valuable role.

To learn more, speak with a WLTH lending specialist on 13WLTH, or ask your mortgage broker about WLTH SMSF loans.

This information is general in nature and does not consider individual circumstances. Professional advice should be sought before making financial decisions.