Westpac has announced it will stop lending to foreign property investors.

The announcement follows similar moves by the other big four banks, but goes further. Westpac will not lend to non-residents, even if they are not relying on income to service the loan. 

The bank will also restrict loans to Australian and New Zealand citizens whose main source of income is from overseas. They will be restricted to loans for new housing only, with Westpac now only willing to lend 70% of the purchase, compared with 80% previously. 

The banking giant has also tightened documentation rules around visas, income and passports, reflecting concerns around fraud and money laundering among foreign property investors in Australia.

Australia's second largest bank wrote to brokers saying its emphasis was on helping Australians buy a home.

"At Westpac, helping Australian to achieve their goal of owning a home or investment property is core to our purpose," said the email. 

"For these reasons, Westpac will no longer lend to offshore customers who are not citizens or residents of Australia with an eligible visa."

The move could put pressure on prices, and hit property developers, especially those who rely on foreign investors. 

But Susan Lloyd-Hurwitz, chief executive of Mirvac, told The Australian Financial Review she was confident the change wouldn't affect settlement rates. Mirvac sells between 20% and 30% of its properties to foreign buyers.

"We're yet to see the impact that will have on financing," she said.

Foreign property investors only began using local financing a few years ago, previously relying on cash, global banks, or their own local lenders for finance. 

Lloyd-Hurwitz said, "I'm not denying if there is no financing from Australian banks for foreign buyers it wouldn't change customer behaviour."

She told The Australian Financial Review, "We'd have to work harder with them to go back to where we were a few years ago when they weren't relying on domestic financing."

The Mortgage and Finance Association welcomed the move. "Westpac's policy change reflects a prudent decision for a more balanced portfolio at this time and reduced exposure for the bank," said chief executive Siobhan Hayden