Is Borrowing in SMSF really a problem?

A lot is made of the rate with which SMSF trustees are taking up borrowing, and the extent to which advisors are recommending this strategy. I agree that on the face of it, it seems a bit high if you are to ask - is the strategy appropriate in all these circumstances?

I have also seen some absolutely atrocious attempts at selling instalment warrants within the property industry when combined with 'advice'. But is the rate of borrowing a problem? Or is it the threat of taking this sometimes useful strategy away, that is driving people to rush into the decision? Behavioural finance tells us that one of investor's greatest fears is the fear of missing out on an opportunity (and this rarely leads to good decision making). So what do you get when you deny people the ability to gear for around 8 years, then grant a limited concession but threaten to review it and possibly take it away again? You create an artificially high demand. If the regulator looks at the level of demand as one of the reasons for terminating the concession, and talks about their concerns, this further elevates the demand. The term 'self fulfilling prophecy' comes to mind. I think that if the regulators and governmthis would settle down and provide certainty around the borrowing rules, you would see a moderation of investor behaviour.