The new policy started on April 26 and will also apply to pre-approved loans that have not been issued or activated within 90 days of pre-approval, Westpac confirmed.

The bank has a usual policy of upholding pre-approvals for 180 days.

"Loans that have been pre-approved, we will honour for 90 days from that pre-approval date," a spokesman said.

Westpac denied last week that it was changing foreign lending rules amid rumours the bank had already halted foreign lending with its mortgage brokers.

Concerns of mortgage rorting by foreign buyers, in collusion with mortgage brokers and bank managers, have been ongoing.

Concerns over applications

Earlier this month, ANZ refused applications with 100 per cent foreign income sources following evidence of sloppy applications with missing passport pages, salaries being paid by obscure offshore companies and crudely translated supporting loan documents.

The CBA, the nation's biggest home lender, followed, withdrawing loans to temporary Australian residents with foreign currency income.


The National Australia Bank has not followed suit and told The Australian Financial Review today it would continue to review foreign loan applications on a case by case basis.

Earlier this month however, NAB reduced the maximum LVR to foreign borrowers to 70 per cent, from 80 per cent.

The Mortgage and Finance Association of Australia supports Westpac's policy change.

"It reflects a prudent decision for a more balanced portfolio at this time and reduced exposure for the bank," chief executive Siobhan Hayden said.

But the tightening is likely to have a negative impact on the impending large volume of new apartment settlements, developers have warned.

Last week, developers and industry groups said the withdrawal of bank lending, after warnings from the Reserve Bank of Australia, could lead to a possible self-fulfilling fear of "apartment collapse".

"The problem is they [Chinese buyers] don't know how much the banks will give till the end," Meriton boss Harry Triguboff said.

"We see the potential for these factors to start to limit supply, and in doing so, place upward pressure on prices," Urban Development Institute of Australia (Victoria) chief executive Danni Addison said.

The recent housing boom has seen an influx of foreign buyers, particularly Chinese buyers, flood the market.

Limited to only new dwellings, foreign buyers have scooped up new apartments in the major capital cities, with many of those due to settle from about 2017.

Westpac's announcement has resulted in a significant sell-off in bank stocks on Wednesday afternoon, Aurora Funds' Andrew Ward said.