"NAB takes into account a range of economic factors, and regularly monitors the performance of local markets to ensure we continue to lend responsibly and sustainably," a bank spokesman said.

"We recognise that no two suburbs are the same, and there are some geographic areas across Australia which have been impacted by local economic conditions. As a responsible lender, we adopt strategies in these geographic areas that seek to reduce the risk to our customers and our business." The bank is still lending to borrowers in the named suburbs.

Other banks, including Westpac, are also set to announce a tightening of their lending criteria this weekend as the nation's lenders rethink their mortgage strategies after years of extensive discounting.

Westpac, and its subsidiaries, will decrease the maximum loan-to-value ratio to 95 per cent from 97 per cent and lower for residential investment loans, serviced apartments, display homes, properties that are being converted to residential from other uses.

Postcodes where NAB will require a higher deposit to approve a home loan.

"These changes by NAB and Westpac are directly linked with upcoming changes to capital risk rules, which are more sensitive to risk settings. For example, higher LVR loans, and loans that require service from money other than income will require more capital," said Martin North, principal of Digital Finance Analytics, who co-authored JP Morgan's influential analysis of the mortgage industry published this week.

"Best discounts and lowest capital requirements will be for owner-occupied loans with lower loan-to-value ratios. The battle will centre on owner-occupied refinance," Mr North said.

NAB's move comes two weeks after chief executive Andrew Thorburn told a parliamentary inquiry into banking that net interest margins are being squeezed at a time when banks are facing higher capital requirements.


Lenders have also responded to pressure from the Reserve Bank of Australia, ASIC and APRA to reduce lending to higher risk investment borrowers, particularly for apartment markets in central Melbourne and Sydney, by cutting back on interest-only loans and increasing deposits to about 40 per cent of the asking price.

For example, earlier this year AMP placed apartments in 140 suburbs on a blacklist because of growing concerns about oversupply, off-the-plan sales, and, in some areas, falling prices. Lenders also slammed the brakes on foreign borrowers.

NAB, which has about five million customers, has previously warned it has 50 high-risk postcodes.

Mortgage Choice, a publicly listed mortgage brokerage, said increasing deposits would make it even tougher for first time home buyers to save a deposit in the nation's hot property markets. Property prices are increasing more than 7 per cent, or more than three times the rate of increase in average incomes.

"House price growth continues to outpace income growth, which means first home buyers are forced to save for longer," said chief executive John Flavell.

Christopher Foster-Ramsay, principal of Foster Ramsay Finance, said regulators are increasing pressure to lower the risk of more price inflation, default and possible negative equity.

"We are likely to see this tightening continue during 2017 and 2018," he said.

NAB's crackdown is also likely to reduce volumes of refinancing, which has contributed to pressure on bank's return on equity because of lower margins and higher costs.

Investment bank JP Morgan is warning that lenders' grab for market share by heavy discounting has contributed to a three-fold increase in churning of loans - which is refinancing a loan at a lower rate - to about 30 per cent of loan approvals in the past 25 years.