Powered by MOMENTUM MEDIA
Powered by MOMENTUM MEDIA
subscribe to our newsletter

Industry bodies clash over SMSF lending

The FBAA has taken issue with the MFAA’s support of SMSF lending following the Financial System Inquiry's (FSI's) recommendation to scrap limited recourse borrowing arrangements (LRBAs).

Earlier this week, MFAA chief executive Siobhan Hayden told Mortgage Business that she would defend SMSF borrowing in a submission to the FSI before March next year.

“Initially I was disappointed because I do think SMSF borrowing can be implemented safely, with consumers being protected,” Ms Hayden said.

“We will mention that in our submission by March next year back to the inquiry. I will be advocating the benefits of it in a submission.”

However, FBAA chief executive Peter White took issue with the MFAA's stance on the matter.

Advertisement
Advertisement

Mr White pointed to the impact of non-recourse borrowing in the United States during the financial crises, when homeowners simply handed their keys back to the lender when they could no longer afford to make the mortgage payments.

“On limited recourse, like we currently have in the SMSF lending space, you have potentially a similar issue,” he told Mortgage Business.

“What the FSI has recognised is that there is an increase in this area.

“You just can’t go out guns blazing saying this is wrong and trying to fight it. There is a lot more to this than just a change in lending practices.”

From a financial planning point of view, structuring an SMSF means that there must be liquidity, diversity and flexibility within the fund to ensure it meets the objectives of providing retirement benefits to the trustee, Mr White said.

PROMOTED CONTENT


“It is there for retirement benefits, not to be leveraged in other ways,” he said. “If you’ve got an increase in lending under limited recourse borrowing within SMSFs, you are promoting gearing that is not diversified and not flexible.

“It doesn’t deliver what the financial planning structure of SMSFs is actually there to achieve. It can take you too far in one direction,” Mr White said.

The biggest worry about SMSF lending concerns what happens when rates start to rise or there is a correction in the housing market, he said.

“If there is a correction and interest rates go up and prices come down, all of a sudden who wears the loss? The lender, because it is limited recourse,” he said.

“That’s not the way responsible lending in this country is done.”

If the proposed SMSF borrowing changes are implemented, SMSF lenders would withdraw their products and broker training courses would cease, Ms Hayden said.

The MFAA is currently running an SMSF lending course that has been well received by brokers looking to enter the space.

In an official response to the FSI yesterday, the MFAA expressed its disappointment with the recommended ban on SMSF borrowing, which it claims "was not supported by any evidence of problems in this area".  

The MFAA argued, and will continue to argue, that this type of borrowing is "a healthy component of the competitive market, provided that involved practitioners are appropriately educated and accredited, for example, under the MFAA SMSF Lending Accreditation", the response stated.

Industry bodies clash over SMSF lending
mortgagebusiness

Latest News

Sentiment in the housing sector has remained negative but has been propelled by the HomeBuilder scheme, which has so far received 11,367 ap...

The central bank has updated its monetary policy outlook, with governor Philip Lowe touting the benefits of further adjustments to the cash ...

NAB has announced that it will open a new waitlist for the FHLDS New Home Guarantee and start accepting conditional approval applications fr...

FROM THE WEB

Join a group of highly informed brokers.

Broker Pulse, a community-driven knowledge base of lender performance Reveal exactly which lenders are making life easiest for brokers and their clients by taking this monthly survey and joining a group of highly informed brokers who leverage these insights every month.

JOIN NOW
podcast

LATEST PODCAST: Victoria’s surprising appetite for new homes

Do you expect to see strong uptake of the HomeBuilder scheme?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.