A prominent adviser has cautioned against “quirky” limited recourse borrowing arrangement (LRBA) providers.
Mark Rogerson, managing director of Rogerson Kenny Business Accountants, cited wide disparities among providers and products as key issues when sourcing LRBAs. The landscape, he explained, is still feeling the effects of David Murray’s 2014 financial system inquiry, which recommended banning SMSFs from borrowing.
“The financial services inquiry from a few years ago recommended a scrapping of LRBAs entirely, and after that ANZ Bank and NAB actually pulled out. So they no longer offer an LRBA product and we’re left with CBA and Westpac,” Rogerson explained, speaking at an SMSF Association National Conference session titled “Funding and owning a property in an SMSF: tips and traps”.
The smaller pool of lenders, he said, which includes several “second-tier providers”, such as Macquarie Bank, Bank of Queensland (BOQ), Bankwest and Bendigo Bank, varies greatly in terms of pre-conditions for lending that advisers need to be across.
“One of my objectives was to put together a matrix of the different LRBA providers and all their different requirements, but it was way too hard,” Rogerson lamented. “I’ve provided some of the average requirements, but without doubt…all of the banks have quirks.”
Rogerson did cover some of the banks’ requirements, which served to illustrate the disparity that exists.
“Most banks,” he explained, “want a minimum value of assets before they’ll even talk to you…but I’ve got CBA at $200,000 and BOQ wanting $10,000. I checked that several times.”
Rogerson also reiterated that clients need to be reminded of the restrictions and regulations involved with borrowing inside of an SMSF.
“People go to ‘pump-me-up’ property seminars and want to have five properties in their super within 10 years,” he said. “We always remind our clients that this isn’t the real world, this is the SMSF world.”