Borrowing within SMSFs continues to grow
Around seven per cent of all self-managed superannuation fund (SMSF) assets representing $26 billion are now held in unlisted property, according to Melbourne-based firm La Trobe Financial.
Discussing the benefits and deficits of borrowing within super, La Trobe's vice-president, lending, Iain Pepper said borrowing within SMSFs had been on the increase since key changes to the Superannuation Industry Supervision Act in 2007.
"Up until 2007, if you wanted to invest in property, generally you had to fund the entire purchase with your available super fund assets," he said. Changes made in 2007 to the SIS Act clarified the rules around borrowing, and allowed super funds to borrow under what is called a Limited Recourse Borrowing Arrangement (LRBA).
"Borrowing under an LRBA means that the other super fund assets are protected and can't be accessed by the lender should the property be repossessed, and subsequently sold at a loss, if the Fund Trustee stopped making payments," Pepper said.
He said that, therefore, lenders would likely seek personal guarantees from the SMSF beneficiaries.
"So, since 2007, borrowing by super funds has been on the increase," Pepper said.
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