Understanding the basics of SMSF loan-to-value ratios

The loan-to-value ratio determines how much you can borrow when acquiring property through your self-managed super fund.

Most lenders offering SMSF loans apply lower LVRs than standard residential lending, with typical maximums ranging from 70% to 80% depending on whether the property is commercial or residential. That means you need a larger deposit from existing fund assets, and the property needs to generate enough rental income to service the loan without drawing on other contributions. For nurses with established super balances looking to build wealth outside of traditional accumulation, knowing what's available and what's changed makes the difference between a viable acquisition and a structure that won't fund.

SMSF Residential Loan LVRs and the August Ban

New limited recourse borrowing arrangements for residential property are prohibited from approximately 10 August 2026 under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. The ban applies to all residential property regardless of whether it is newly constructed or an existing dwelling.

If you exchanged a contract for residential property before that date, the arrangement is protected even if settlement occurs later. Existing LRBAs over residential property entered into before the commencement date are grandfathered, with the trigger for protection being the date of contract exchange.

For those arrangements still in place, residential SMSF loan LVRs typically sit at 70% to 75% with most lenders. A small number of specialist lenders offered 80% LVR for residential property before the legislative change, but appetite at that level was limited and required strong fund liquidity and rental yield.

Consider a nurse with an existing residential LRBA over an apartment acquired in early 2025. The fund borrowed at 70% LVR, contributing $180,000 from accumulated super and borrowing $420,000. The property generates rental income taxed at 15% within the fund, and the loan is structured on principal and interest terms over 15 years. That arrangement continues without disruption under the grandfathering provisions.

SMSF Commercial Loan LVRs After the Residential Ban

LRBAs for commercial property that satisfies the definition of business real property under section 66 of the SIS Act are not affected by the 2026 residential ban. Business real property means land and buildings used wholly and exclusively in one or more businesses.

Commercial property LVRs under an SMSF loan typically range from 60% to 70%, lower than residential due to perceived higher risk and smaller resale markets. Some lenders will reach 75% for well-located commercial assets with long-term leases to creditworthy tenants, but that's not standard.

The deposit requirement is correspondingly higher. At 65% LVR, a commercial property valued at $800,000 requires $280,000 in existing super assets for the deposit, plus settlement costs and loan establishment fees. Those additional costs usually sit between $15,000 and $25,000 depending on state and lender.

A nurse practitioner operating their own consulting rooms might acquire the premises through their SMSF and lease it back to their practice entity. The lease must be on arm's length terms at market rent, and the rental income flows into the fund taxed at the concessional superannuation rate. That structure converts what would otherwise be rent paid to a third party into contributions to retirement savings, while the SMSF holds a tangible asset with inflation protection.

SMSF Deposit Requirements and Fund Liquidity

Borrowed funds cannot be used to improve an existing asset under an LRBA. The deposit and all settlement costs must come from cash or liquid assets already held in the fund.

If the fund doesn't hold sufficient cash, trustees can make additional concessional or non-concessional contributions subject to the caps, or sell down other fund assets to raise the required amount. From 1 July 2026, the concessional contributions cap is $32,500 per annum and the non-concessional contributions cap is $130,000 per annum.

Funds also need to maintain sufficient liquidity to meet ongoing loan repayments, trustee fees, audit costs, and any other fund expenses. Rental income from the property usually covers most or all of the loan repayment, but vacancies and maintenance costs can create shortfalls. Lenders assess serviceability assuming the fund can meet repayments from rental income without relying on future contributions.

In scenarios where a fund holds $350,000 in cash and listed shares, a trustee might need to sell a portion of the share portfolio to reach the required deposit and retain enough liquidity for loan serviceability. The alternative is to wait and build cash through additional contributions over one or two financial years, but that delays the acquisition and risks missing the opportunity depending on timing.

How Lenders Assess SMSF Borrowing Capacity

SMSF borrowing capacity is not assessed on the trustee's personal income. Lenders assess the fund's ability to service the loan based on the rental income generated by the property being acquired, adjusted for a serviceability buffer and vacancy assumptions.

Most lenders apply a rental income discount of 20% to 30% and assess serviceability at an interest rate higher than the actual loan rate, usually by adding a buffer of 2% to 3%. That means a property generating $40,000 in annual rent might be assessed on $28,000 to $32,000 of income, and the loan must be serviceable at an interest rate of around 9% to 10% even if the actual rate is closer to 7%.

For SMSF loans for nurses where the fund balance has been accumulated through salary sacrifice and employer contributions over a long career, the deposit is often available but the rental yield on the target property becomes the limiting factor. A high-value residential property with a lower percentage yield may not service the required loan even if the LVR is conservative.

SMSF Loan Interest Rates and Structure

SMSF loan interest rates sit higher than standard residential mortgage rates due to the additional complexity and perceived risk associated with the limited recourse structure. Rates typically range from 1% to 2% above equivalent residential investment loan rates.

Most SMSF loans are offered on a variable rate basis, though some lenders provide fixed rate options for terms of one to five years. The ATO publishes safe harbour interest rates for SMSF LRBAs under PCG 2016/5, updated annually, applying to both real property and listed securities held under an LRBA. Income from an arrangement that does not meet arm's length terms may be assessed as non-arm's length income and taxed at the highest marginal rate.

Loans are typically structured over 10 to 15 years, shorter than a standard 30-year mortgage. The shorter term increases repayment amounts but reduces total interest paid and aligns with the timeframe for funds transitioning into pension phase.

Offset accounts can be used with SMSF loans where the lender offers them. Genuine offset accounts offered by an authorised deposit-taking institution are not treated as a borrowing or a charge over fund assets under existing ATO guidance. Parking surplus fund cash in an offset reduces interest costs without triggering compliance issues.

Refinancing Existing SMSF Loans and LVR Changes

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 provides that the residential LRBA prohibition does not apply to maintaining or refinancing a borrowing under an arrangement entered into before the commencement date. That means existing residential LRBAs can be refinanced to a different lender or restructured on different terms without losing grandfathered status, provided the refinancing does not create a new arrangement.

Under the ATO's existing position, a significant change to the terms or conditions of an LRBA ends the arrangement and a new one begins, with circumstances that may end an existing arrangement including refinancing that is inconsistent with the original arrangement, borrowing to acquire an asset not contemplated under the original arrangement, and changes to the ultimate beneficiaries of the arrangement.

As at early July 2026, the ATO had not published updated guidance on how those principles apply under the new legislative framework. Trustees considering refinancing an existing residential LRBA should seek advice from a licensed SMSF specialist before proceeding.

For investment loan refinancing for nurses holding property outside super, the refinancing process is more straightforward and does not involve the same compliance overlay. SMSF refinancing requires careful documentation to preserve the limited recourse structure and maintain compliance with both the SIS Act and ATO guidance.

Division 296 Tax and Its Effect on SMSF Property Strategy

From 1 July 2026, where a member's total superannuation balance at the end of the financial year exceeds $3 million, Division 296 tax of 15 percent applies to the proportion of earnings attributable to the amount above that threshold, and where the balance exceeds $10 million, an additional 10 percent Division 296 tax applies to the proportion of earnings above that threshold.

Outstanding LRBA amounts entered into on or after 1 July 2018 are included in a member's total superannuation balance in certain circumstances, including where the LRBA is with an associate of the fund or where the member has satisfied a condition of release with a nil cashing restriction.

For nurses with large super balances approaching or exceeding the thresholds, the inclusion of LRBA debt in the total superannuation balance calculation can push the balance over the threshold and trigger the additional tax. The effect is that property held under an LRBA may be less tax-effective than property acquired using existing fund cash without borrowing, depending on individual circumstances.

In scenarios where a fund holds $2.8 million in assets and the trustee is considering borrowing $400,000 under an LRBA, the outstanding loan amount may be included in the total superannuation balance calculation depending on the nature of the lender and the member's condition of release status. That inclusion could result in Division 296 tax applying to earnings on the portion of the balance exceeding $3 million. The decision to proceed with the LRBA should factor in the additional tax cost against the benefit of leverage and property exposure.

Comparing SMSF Lenders on LVR and Serviceability

Not all lenders offering SMSF loans apply the same LVR caps or serviceability criteria. Some assess rental income at a lower discount, some apply smaller interest rate buffers, and some will lend at higher LVRs for specific property types or locations.

A SMSF mortgage broker with access to multiple specialist lenders can identify which lender offers the highest LVR for the specific property and fund circumstances. That might mean the difference between needing an additional $50,000 in fund cash for the deposit or being able to proceed with existing assets.

Lenders also vary in their appetite for commercial property types. Some will lend against medical and allied health consulting suites at higher LVRs due to the perceived stability of healthcare tenants, while others treat all commercial property equally. For nurses considering acquiring their workplace premises or related healthcare property through their fund, lender selection affects both the deposit required and the interest rate applied.

Serviceability is where most SMSF loan applications encounter limits. A property with strong capital growth prospects but a modest rental yield may not generate sufficient income to meet the lender's serviceability test, even if the LVR is well within policy. That's particularly relevant for residential property acquired before the August ban, where inner-city apartments in high-demand areas often trade on lower yields than suburban houses.

Call one of our team or book an appointment at a time that works for you. We work with nurses at all stages of their super journey and can walk through the numbers on any property you're considering through your fund.

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