is a senior finance strategist with Investors Direct Financial Group www.investorsdirect.com.au There is no doubt that 2007 marked a watershed for Australian property and the economy. After years of steady and sometimes spectacular growth, the US sub-prime crisis of mid 2007 has had a profound impact on the world's financial markets and the future of the Australian housing market.
But what does it all mean for investors?
There is no doubt that 2007 marked a watershed for Australian property and the economy. After years of steady and sometimes spectacular growth, the US sub-prime crisis of mid 2007 has had a profound impact on the world's financial markets and the future of the Australian housing market.
It is clear now that the financial crisis has and will continue to affect the financial market structure and pricing for a prolonged period. Attitudes to risk have changed and it is being treated much more conservatively in 2008.
Despite recent comments from Gail Kelly, CEO of Westpac, that the worst of the credit squeeze was over, she also has made it clear that the banks have plenty of opportunity to assess would be borrowers and are not desperate for business. She denies that the term "credit rationing" is used at Westpac, but when in the same interview she also admitted that borrowers could always go elsewhere for their lending, it is clear that it may not be rationing by name, but it is by nature.
Cutting through all the spin the reality of the situation for investors in May 2008 is that there have been many changes to the lending landscape since the start of 2008. We want to make you aware of these changes because they impact the way investors need to be managing their portfolios in these uncertain times.
The overall lending environment
Across the board the biggest change we are seeing across all lenders and all their products is changes to their assessment criteria.
The credit crisis means that bank and non-bank lenders are being very cautious and picky with all applications. They are looking beyond the normal checks and almost, dare we say it, looking for ways to decline applications.
Full Doc Loans
Credit worthiness is a real focus for all lenders now. Full Doc applicants are being scrutinized just as hard as Low or No Doc applicants. We are even seeing some lenders ask for justifications for why investors are accessing the accessible equity their new loan facilities have provided them.
Low Docs
On top of tighter assessment criteria, recent assessment changes have meant that virtually all Low Docs products now need you to have an ABN registered for 2 years. GST registration requirements vary according to lenders.
However the good news is that there are still some investor friendly lenders out there. For Low Doc customers we have one 80% Low Doc product with minimal ABN and GST requirements which is not mortgage insured and allows the use of Hybrid Trusts.
No Docs
The most significant changes have occurred in the No Doc product space. We have seen investor's options reduced significantly and assessment requirements are changing rapidly.
Some lenders have removed their No Doc products from the market all together. This means there are less options available for established investors who are reluctant to declare an income or reveal their Asset and Liabilities position. It also potentially affects first time investors who may be self employed and were looking to set themselves up for purchases.
Other lenders have reduced the Loan to Value (LVR) ratio on their products. One of our lenders has reduced their LVR to 65% and imposed limits on accessing equity. By removing cash out options from their products, these lenders have effectively eliminated the option for investors to be able to access cash reserves. This is a real issue for those investors who want to use the equity they have built up in their home to cover their purchase and holding costs for new purchases.
So what is the mood of investors?
So while the options available to investors are more limited than last year, how has this effected the sentiments, mood and attitudes of investors?
What we are seeing across all our offices are that our clients are naturally being more cautious when faced with uncertainty. The state of the market was summed up succinctly recently by Dr Shane Oliver, Head of Investment Strategy and Chief Economist of AMP Capital Investors: "rising interest rates and a rise in mortgage stress to record levels has led to a deterioration in the outlook for house prices at a time when Australian housing remains very overvalued, affordability is terrible and low rental yields make housing less attractive for investors".
"While the housing shortage and the low likelihood of a recession should prevent sharp falls in Australian house prices, modest falls are now likely over the year ahead".
So rising interest rates coupled with tighter global liquidity which has forced lenders to ration credit means that we can now expect subdued housing growth in the short term. The impact of this is that unlike in 2007 there is now less impetuous to rush into purchases and our clients are being patient and waiting for vendors price expectations to fall. We are advocating and seeing more investors do top-ups and refinances to bring forward accessing their equity now to either service their existing portfolios, or to take advantage of increasingly motivated sellers.
While still focused on the long term we are seeing our clients more actively review their portfolio's performance, re-evaluating their risk management strategies and re-affirming their buffers in line with expectations that capital growth will slow.
What are the real implications of all these changes for investors?
The real implications of these changes is that the market in 2008 is a very different place to the market in 2007.
As an investor the key things you need to be aware of are:
· It is getting harder to get deals through:
We are working even harder for clinets doing more preliminary work and research on lenders given the changing credit criteria to make sure you get what you need.
· It is taking a longer time to get deals through:
You now need to take this into account when planning your next move. You need to allow more time for your refinances and purchases and be quick to get supporting documentation through to us. Also be prepared to supply extra documentation outside the "normal' requirements of the past. We are making sure that all our applications are 100% correct before we lodge them. If there is one thing wrong with an application they are being sent back for re-work and the process has to start again.
· Risk management:
Your risk management strategy and buffer are now more important than ever.
There are now more reasons than ever to speak to your broker versus directly to lenders because we know what is happening across the full spectrum of different lenders. We are still able to do something for 95% of our clients regardless of their situation. Today it is more important than ever that you understand what is happening in the finance environment and to do this you need 
to have a good relationship with your financier. You don't want to be caught short.
Ready yourself now to take advantage of the opportunities that the market will present to smart and prepared investors in the next 12 months.
This article was written by Michelle Coleman, Vincent Power, John Gorman & Rhoda Downie Copyright © 2001-2008 Investors Direct™
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