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LRBA confidence returns

After a period of uncertainty surrounding limited recourse borrowing arrangements (LRBA), both SMSF advisers and trustees had moved on and continued to use the structure in their funds, according to an industry lawyer.

On 20 October 2015, the federal government announced in the full report on the Financial System Inquiry that it would take no action against SMSFs and LRBAs.

The government noted that while there were anecdotal concerns about LRBAs, it did not consider the data sufficient to justify significant policy intervention.

“We did see a slowdown in gearings around the time of the possible LRBA ban, but activity has since picked up now,” Townsends Business & Corporate Lawyers solicitor Julie Hartley told selfmanagedsuper.

“It looks like the industry and the public are quite confident in LRBAs continuing.”

Commenting on whether the number of LRBAs was expected to increase, Hartley said: “It depends more on the banks and whether clients can afford them [the loan].

“And with SMSF clients becoming older there’s a question around the ability of being able to get a loan and also cash-flow issues if you have an LRBA paying a pension, which is quite a significant one to consider.”

She pointed out that while the number of financial institutions lending to SMSFs was now limited, it was still crucial for trustees to do their due diligence with their bank.

“I think because the banks have less competition it can actually make things harder for the client, so I don’t know if reducing the pool of bank lending is going to necessarily make things easier,” she said.

“For example, they can make unreasonable requests often to do with the stamping of the holding trust deed.

“Some banks insist on having it stamped before settlement because in some states you can’t.

“It’s a lot easier if you do it after settlement because stamping takes about four to six weeks at the moment, so if the bank imposes it on the client first, it can delay things.”

Since some banks had dropped off the radar for LRBAs, a number of smaller non-bank lenders had popped up in the marketplace, she said.

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