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Borrowing in super has taken a dive. Why?

Borrowing in superannuation has enjoyed a popularity streak since it was first allowed in 2007, but ongoing tinkering with the rules and a tougher lending environment have taken its toll on investors. 

Limited recourse borrowing arrangements (LRBA) – which is the structure used to borrow in superannuation – saw a significant slowdown in growth during 2018, according to new ATO figures.

The total value of LRBAs increased by just 1.6 per cent, versus the 45 per cent jump in value the previous year.

Between December 2016 and December 2017, LRBAs increased by 45.2 per cent from $29.1 million up to $42.2 million.

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Several lenders have exited SMSF lending in the last couple of years also, with Macquarie Bank being the most recent one. For residential lending, all the major banks have exited SMSF loans and are only servicing existing contracts rather than new business. 

Further, the legislative goal posts keep shifting for SMSF loans, to the frustration of SMSF experts like Heffron SMSF Solutions director Meg Heffron. 

Ms Heffron, who was on the board of the government’s 2010 Superannuation System Review, fears it is “death by 1,000 cuts” for SMSF borrowing.

“There’s plenty of reasons to attack on policy grounds – such as that [borrowing in super] potentially fuels heated housing markets. If that was being advanced as a reason, I might get it. But evidence of people blowing up their superannuation with LRBAs? I don’t believe that exists,” she said earlier this year.

How growth is tracking

The estimated total in SMSF assets saw a slight decrease, falling from $728 billion down to $726 billion.

The ATO’s SMSF quarterly statistical report for December 2018 also indicates that the total number of SMSFs has now climbed to 597,009 while the total number of members has now reached 1,127,304.

Overall, the number of SMSF establishments have slowed in recent years, which ATO assistant commissioner Dana Fleming puts down to a maturation of the sector. 

“The take-up period always has a really high trajectory, that’s where we were at for quite a long period of time,” she told Nest Egg at the Accounting Business Expo in Sydney this week. 

Borrowing in super has taken a dive. Why?
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