LRBA ban raises questions as new details emerge

New data indicates the impact of the limited resources borrowing arrangements (LRBAs) ban for self-managed super funds (SMSFs) may have been underestimated, which will affect a market significantly larger than what officials suggested, with major implications for housing supply and competition in the mortgage market.

The government swiftly passed legislation to ban SMSFs from accessing LRBAs to purchase residential properties last month, which will come into effect on August 10.

However, preliminary data provided by the members of the Australian Finance Industry Association (AFIA) "directly addresses the systemic risk rationale cited in support of the ban."

The findings show over 16,000 new residential SMSF loans were written in FY26, with total security of $10.3 billion, which is approximately four to five times the ATO's average yearly estimate of 4000 new LRBAs. The revelation suggests the scale of the market, and the impact of the ban, may not have been fully understood when the amendment was passed without consultation, AFIA said.

As AFIA members do not represent the full market, the true figure is likely higher.

AFIA chief executive Diane Tate said the data painted a very different picture of the market than the one on which the policy was based.

"This is not a small or marginal segment of the lending market. Our members alone wrote over 16,000 new residential SMSF loans in FY26. The ATO estimate of 4000 per year is based on data that Treasury officials have acknowledged is around three years old," Tate said.

"The policy was designed around an incomplete picture and supposedly a review conducted well over a decade ago."

Meanwhile, it also highlighted that residential SMSF lending is written at an average loan to value ratio (LVR) of approximately 67%, significantly below the 70% to 80% LVR typical of mainstream residential investment lending.

"At an average LVR of 67%, with substantial member equity contributions and a heavily supervised regulatory structure, the systemic risk argument does not stack up against the evidence," Tate continued.

While AFIA is not calling for the ban to be reversed, it is recommending a targeted exemption for new residential dwellings, using the existing definition in section 26-160 of the Income Tax Assessment Act 1997 already legislated as part of the government's own tax reform package, it said.

"The government has already drawn a principled distinction between new and established residential dwellings in its CGT and negative gearing reforms, preserving full concessions for new dwellings to encourage housing supply," Tate said.

"Applying that same logic to SMSF borrowing is internally consistent, uses the government's own drafting, and does not reopen the core policy agreement.

"A significant portion of our members' SMSF lending is already directed toward new build residential dwellings. A new dwelling exemption would preserve this private capital contribution to housing supply at exactly the time the government is trying to build more homes.

"Residential property held in an SMSF is rental stock, so this form of property ownership is not only good for supporting new housing, but critical for underpinning the rental market."

Tate added removing the segment does not just affect SMSF trustees, but also weakens competition in the broader mortgage market, while adversely impacting housing supply and affordability.

Aligning with SMFS Association's sentiment, AFIA is also calling on the government to provide urgent clarification ahead of the commencement date on the treatment of exchanged contracts, off-the-plan purchases and refinancing arrangements, to ensure an orderly transition.