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LRBA, Property

LRBAs to bounce back after election

limited recourse borrowing arrangements; LRBA; Grant Abbott

LRBA usage is likely to rebound off the back of government support and lower property prices.

Limited recourse borrowing arrangements (LRBA) are likely to rebound in popularity following the re-election of the coalition government, despite the absence of major banks providing loans to SMSFs.

Speaking as part of a post-election webinar today, I Love SMSF chief executive Grant Abbott said LRBAs were available for use by SMSFs for at least another three years given Labor’s plans to ban them permanently would not be introduced into parliament.

“LRBAs are back on the table so we need to get out and make sure clients are aware we have dodged a bullet and if they want to put in place an LRBA, now is the time to do it,” Abbott said.

“I do hope the banks come back into the market, but it does not matter because we do have other high-quality loan providers out there who are still offering loans.

“There are some good financial institutions which are raising their head, such as credit unions, that will continue to do LRBAs for both residential and commercial property, and there are a few who also cover farms.”

Abbott noted that while the property market had dropped, it may rebound given the coalition’s election policy to provide deposit assistance to first home buyers, but in the interim there were likely to be some good property deals for SMSF trustees.

He also flagged growth in the use of umbrella LRBAs for individual shares, which would use an instalment warrant facility through a related-party loan that would offer franking credits and tax deductions, as well as the possibility the LRBA loans may eventually be offered through peer-to-peer lending.

While Labor had promised to ban LRBAs if it won government, the coalition rejected that move.

Earlier this year, it indicated it would allow LRBAs to remain in place, following the release of a report from the Council of Financial Regulators that showed the arrangements did not create any systemic risk within the superannuation sector.

Despite this finding, the major banks had already withdrawn from offering LRBAs, with NAB ceasing to offer them in 2015, Westpac doing the same in mid-2018 and Commonwealth Bank of Australia pulling out of the market in October 2018.

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