Powered by MOMENTUM MEDIA
subscribe to our newsletter

Costello defends SMSF lending

Former treasurer Peter Costello has argued that a ban on limited recourse borrowing within SMSFs will only shift gearing into other potentially riskier areas outside super funds.

Speaking at an AMP Capital-sponsored event, Mr Costello said banning LRBAs within SMSFs will not prevent SMSF trustees taking on more debt outside their super fund which could potentially be riskier for them.

“Inside the fund the debt can be non-recourse but outside the fund it can be over-recourse,” said Mr Costello.

Trustees, he said, may also gear at over 100 per cent if they take on debt outside their fund.

“So if you put that rule [banning LRBAs in SMSFs] in place, you may just be shifting the gearing. You may even be shifting it into more risky areas,” said Mr Costello.

Advertisement
Advertisement

While the recommendation to ban LRBAs in SMSFs in the Financial System Inquiry was a valid recommendation and worth further discussion, there was currently no evidence to suggest that it posed a risk to the financial system, Mr Costello said.

“The people that go into SMSFs by and large are people who know how to run businesses; they’ve gathered a few assets together and like to manage them on their own,” he said.

“They think they can manage their own assets as well as anybody in the public offer funds or an industry fund and taking on some debt would not be unusual for these kinds of people.”

Michael Hallinan, Townsends Business & Corporate Lawyers special counsel for superannuation, has a similar view on the issue.

Mr Hallinan said that if a bank is likely to be far more stringent in lending to a super fund through an LRBA then it will be for a full recourse loan outside super.

PROMOTED CONTENT


“So in one sense, banning in super will just result in people investing elsewhere,” he said.

Mr Hallinan said a better solution for the government might be to implement other regulation around borrowing rather than a complete ban.

“The simplest way to get rid of the worst features would be to impose some sort of minimum requirement that the interest rate must be a commercial rate and some sort of upper ceiling in terms of the LVR,” he said.

 

Costello defends SMSF lending
mortgagebusiness

Latest News

Australian buy now, pay later giant Afterpay is set to be acquired by a San Francisco payments fintech, in a deal worth approximately $39 bi...

There has been sustained robust growth in home lending driven by strong owner-occupied lending and faster growth in investor housing, accord...

The prudential regulator has launched a week-long consultation on its regulatory approach for banks offering temporary financial assistance ...

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

How long do you think it should take to discharge a mortgage?

Website Notifications

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