The National Australia Bank Ltd (ASX: NAB) has become the last of the big four banks to ban lending to foreign buyers without domestic income.

Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) all introduced rules to restrict lending to foreign buyers over the past few months. NAB had lowered its loan-to-valuation ratio (LVR) to 70% from the more usual 80% and said it would evaluate lending to foreign buyers on a case-by-case basis.

But that is now out the window, and foreign buyers will likely find it extremely difficult to get the required property finance, which could place immense pressure on apartment property developers as settlements come due.

NAB will now only consider foreign home loan applications for buyers with Australian income – as the bank told the Australian Financial Review.

NAB continually reviews its policies to ensure we continue to lend responsibly, and respond to changing market conditions and regulatory requirements,” a spokeswoman said.

We recently made changes to our policy for lending to foreign applicants, which came into effect on Saturday 18 June. NAB has limited appetite for this segment, which comprises only a small percentage of NAB’s lending book.”

“Under these changes, applicants will need to provide evidence of existing Australian income in order to be eligible for home lending application purposes.” [Emphasis mine]

The reasons cited are more to do with incomplete applications and higher potential for fraud and money laundering. ANZ had found some incomplete applications, missing passport pages, salaries from obscure offshore companies amid allegations of rorting by foreign buyers.

Foolish takeaway

It could mean foreign buyers could be forced to default when the times comes to pay for brand new off-the-plan apartments, with thousands coming due in the next 12 months thanks to a flurry of construction over the past year.

That could see apartment prices smashed.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.