Why My SMSF? A peek into the budget restriction on SMSF direct residential property financing

It’s been six weeks since the federal budget 2026 was handed down.

Those of us who have not been party to the brutal post-budget lobbying and haggling, have watched with bated breath as the various interest groups jockeyed to improve outcomes for their constituencies.

We’ve seen the start-ups/SME CGT carve out reset to cover business with up to $10 million in annual turnover (previously only covered businesses with annual turnover of up to $2 million) with the estimated impact of this reset ensuring approximately that 98% of active local businesses won’t be impacted by the budget CGT measures.

SMEs account for approximately 63% of private sector employment, and this carve out acknowledges the significance of insulating entrepreneurial incentive within the engine room of the economy.

So far, so good.

But the cynics amongst us knew that the process of ensuring this budget makes it to law would involve a healthy (unhealthy?) dose of political expediency.

Cue the SMSF segment being sacrificed on the altar of political optics.

Yesterday’s change? Removing the ability of SMSFs to obtain limited recourse financing to buy direct residential properties, that has been in place since 2011.

Did anyone else notice that deafening silence that followed this announcement from those on the opposite of the political spectrum?

Here’s why…

For the party that allied with the government of the day, this new measure played into its core narrative of improving housing ownership access for all. Their logic is less SMSF investors means less competition for the same stock for prospective owner occupiers.

And for the government of the day? Well, the SMSF sector now represents approximately 25% of the superannuation sector and stands in competition with the industry super funds sector that continues to retain union representation within their trustee boards.

For the political spectrum that traditionally represented the big end of town, likewise the SMSF sector competes with the retail super funds sector and (…wait for it) big 4 banks plus 1 do not offer SMSF financing as part of their otherwise extensive finance product suite.

In other words, everyone is OK with yesterday’s announcement (… or should I say, everyone who matters politically is OK with yesterday’s announcement).

Even those SMSF member/trustees with existing direct residential properties under finance are not affected and would be OK.

Who’s not happy?

First and foremost, the non-bank financing sector.

Representing approximately 10% of the residential mortgage market, it has become increasingly reliant on alternate financing products – such as investment property finance, SMSF property finance and low/alt doc finance – following the crunching of margins in the owner-occupied residential mortgage product space that resulted from the big 4 plus 1 banks’ ongoing mortgage war.

The budget changes to negative gearing, CGT and now SMSF financing would place additional duress on already compressed margins and test the resilience of this sector over the near term as the housing market contracts in terms of both activity and price levels.

Also missing out are the intended target of the measure: SMSFs that don’t have the capacity to purchase residential properties outright with no finance. Pro tip: you can still get exposure to the residential property market by investing in indirect residential properties but only through licensed, regulated and independently audited products such as the MCCA Property Fund.

So, for us SMSF member/trustees what does yesterday’s ban of SMSFs obtaining finance to purchase residential properties mean?

While the government of the day has now apparently secured the passage of its budget to law (expected 2 July 2026), it would be foolhardy to conclude that the theatre of the federal budget is over for 2026. Watch this space…