Is Westpac signalling the beginning of the end for SMSF borrowings?
Westpac (and its subsidiaries St George Bank, Bank of Melbourne and BankSA) announced that they will no longer offer new loans to SMSFs looking to invest in the property market. This takes effect from 31 July 2018.
The move follows widespread tightening of lending practices by banks, declining property prices and an oversupply of property. The decision also follows the fall out of the recent banking royal commission into the lending practices of major Australian banks.
While Westpac will continue to service its current SMSF customers, its exit from the SMSF lending market echoes the continuing debate as to whether the ban on superannuation borrowings should be reinstated.
Fewer financial institutions will now lend to SMSFs.
Clients wanting to use a borrowing strategy in conjunction with their SMSF will need to use other assets as security. This can be done by using a non-geared unit trust (that complies with SIS Regulations 1994 reg 13.22C) or a direct on-lend. If an on-lend arrangement is used, it is wise to "swim between the flags" as planted by the ATO in its practical compliance guidelines (PCG 2016/5).
Labor leader Bill Shorten recently supported a policy to ban superannuation borrowing. If Labor is successful at the next federal election, a ban on superannuation borrowings is a highly likely outcome.
Brown Wright Stein can provide insight and guidance to help SMSF clients navigate the compliance issues to help them achieve their growth aspirations.