A man leaves a BankWest branch in central Sydney October 8, 2008. Reuters/Tim Wimborne

Bankwest has announced that it will no longer include the negative gearing benefits in assessing the loan eligibility of new borrowers. Existing deals that required assessment were also affected by the changes. The bank's decision did not impact Australian Taxation Office deductions including rates and maintenance that could be made at the end of the tax year.

"This change aligns Bankwest with industry best practice and guidance from regulators, specifically APG 223 within the Residential Mortgage Lending prudential practice guide," a Bankwest spokesman said through an email statement.

Bankwest's decision was made after its parent bank, Commonwealth Bank of Australia (CBA), cut back on some investor loans. The decision appeared to be the latest move of the parent bank's group to cool property investment loan growth. CBA said that it would no longer accept refinancing applications from property investors who want to switch from other banks.

"Commonwealth Bank has remained below APRA's 10 percent investment lending growth threshold since it was announced in December 2014. We remained focused on meeting our regulatory commitments and on ensuring the long-term sustainability of the Australian home loan market," CBA's head of retail banking Matt Comyn said.

Mortgage brokers said that it was a common practise in banks to include negative gearing in assessing loans. However, Credit Union of Australia did not include it in its policy. The company is the largest customer-owned financial institution in Australia.

Property investors were upset on the decision as they relied on negative gearing in boosting their borrowing capacity. Charlotte Jover and Lloyd Lamberti, property investors, said that the bank's changes were unfair and uncertain. "We have meticulously planned our finances to build a deposit for our first home. It's not fair and we will be looking for another lender," Jover said.

Chief executive of buyer's agency Property Maven Mirian Sandkuler said that the sudden change was brutal. She said that the implications to investors were far reaching and substantial if Bankwest reviews approved loans in their pipeline.

"We understand that financial institutions need to manage their risk profile but is it part of a bank's remit to take a selective stand on negative gearing, which is a central tenet of the tax system?" Alex Malley, CPA Australia chief executive, said.

Other banks could follow suit on the decision of axing negative gearing benefits to curb investor lending. Bendigo and Adelaide Bank chief executive Mike Hirst signalled that the possible change was in his toolkit but the bank was not considering an immediate implementation.