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Jessica Darnbrough
Brokers have been warned by the Australian Taxation Office and the MFAA to steer clear of split property loans according to a report in The Australian Financial Review.
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Split property loans - not to be confused with split rate loans - were popular in the late 1990s.
They allowed home owners to divert all cash inflows to the home loan or an offset account, while using a credit facility to pay interest on an investment loan, effectively ‘capitalising’ that interest.
These loans were later quashed in 2004 when the Tax Office finally won a landmark case in the High Court.
However, The Australian Financial Review, has reported that some lenders are continuing to market this type of loan.
Speaking to The Adviser, MFAA chief executive Phil Naylor said while he was not personally aware of any lenders that were marketing these types of loans, brokers should refrain from putting a client into a split loan.
“While I am unaware of any lenders currently marketing these products, the ATO has made it very clear that they will be cracking down on borrowers that enter into a split loan. Brokers should be avoiding these types of loans anyway as they are not in the customer’s best interest and a broker is expected to protect their client’s best interests,” Mr Naylor said.
FYI Group director Sam Ayliffe agreed with Mr Naylor and said while he had not heard of any lenders recommending these loans in recent years, he would not use the products even if they were readily available.
“I wouldn’t want to put any client of mine into a split loan. However, my advice to any client that is contemplating entering into a split loan would be to seek full financial advice first,” he said.
