Rise in SMSF loans from second tier lenders sparks concern
With increasing numbers of SMSFs taking up loans from second tier lenders, a technical expert warns that some of these lenders do not have a thorough understanding of SMSF loans and may not structure them correctly.
Australian Executor Trustees technical services manager Julie Steed said with none of the major banks or AMP offering SMSF loans for residential properties anymore, SMSF borrowers have been pushed down to second to second tier lenders.
“Even though these lenders technically have the same credit licensing requirements, it is a concern given that not all of them specialise in limited recourse borrowing arrangements,” said Ms Steed.
“I can certainly envisage that we might get back to a scenario that we were in very early on with LRBAs whereby you have a contract and on the front cover it says limited recourse borrowing arrangement but when you turn to page three, it’s clearly not a limited recourse loan.”
When the government first allowed SMSF to borrow back in 2007, initially even the big banks didn’t fully understand all of the ins and outs of LRBAs, she said.
“It took a little while for particularly the sales staff to understand what it was they were helping people with,” she said.
Where a loan for an SMSF is not properly structured as an LRBA, this can result in the SMSF breaching legislative provisions, she warned.
Many SMSFs are unable to obtain an LRBA from a commercial lender at all, she said, given the reduced pool of lenders and tighter lending policies.
“It’s more important than ever to make sure that your clients have got their ducks in a row in relation to loan agreement before they actually go and purchase the property,” she warned.
“If you’ve got clients who call you up on a Monday morning to tell you they’ve bought a property at an auction on the weekend and they need to set up an LRBA – well that’s just not going to happen.”
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
