Westpac has announced a new policy that will allow its mortgage customers entering hardship arrangements the option of building a savings buffer by making smaller mortgage repayments.
It said that the savings buffer is a short-term strategy to assist customers with building their savings buffer to fund unexpected expenses, and added that interest will continue to accrue on the home loan.
Westpac explained that it will work with customers to introduce a short-term savings buffer of at least $100 per month when calculating hardship payments, which it said would provide customers with funds to pay for urgent expenses, pay off higher interest debts, or provide them with savings.
Westpac’s hardship consultants will work with customers individually to determine the amount they can reserve within their budget for a savings buffer as part of developing the hardship arrangement, it said.
The new measure has been implemented in conjunction with Westpac’s existing hardship support measures, which could include payment deferrals, interest rate reductions, long-term extensions, and referrals to financial counsellors, it said.
The lender said that the savings buffer is currently in pilot and will be rolled out to more customers in coming months.
The policy change has followed recent research commissioned by Westpac and conducted by Lonergan Research in May, which showed that one in two of the 1,001 respondents surveyed have had to pay for unexpected bills in the past 12 months ranging from auto repairs (24 per cent), home repairs (20 per cent), medical bills (20 per cent) and pet emergencies (11 per cent), while two in five said they would feel financially unprepared to cover these emergency costs.
Commenting on the new policy, Westpac director, customer vulnerability and financial resilience, Catherine Fitzpatrick said that while most borrowers have resumed mortgage repayments after deferring them during the coronavirus pandemic, there are around 4,500 accounts where individuals and families may require additional support.
She said: “After meeting their monthly expenses, we have found some customers have no income left to prepare for life events like medical emergencies, fixing a household appliance or a car breakdown.
“The savings buffer is designed to help customers in severe financial stress keep their heads above water. We hope the savings buffer will help customers avoid turning to higher interest products or pay day lenders to help pay off debts.
“We will take a customer’s financial history into consideration and look to the future to work through multiple options to help get them back on track,” Ms Fitzpatrick said.
The savings buffer is supported by Financial Counselling Australia (FCA), which has been advocating for banks to assist borrowers in hardship with building a savings buffer to cover emergency expenses, Westpac said.
In welcoming Westpac’s new policy, FCA CEO Fiona Guthrie said: “When creditors expect every single cent of a person’s uncommitted income to go towards repaying debt, all they are doing is setting people up to fail. Life always happens. Financial counsellors know that in reality we should expect unexpected expenses.
“Providing for a savings buffer will mean peace of mind for Westpac customers doing it tough. This will be in the interests of most customers as well as the bank. This is a really sensible initiative from Westpac, and we hope other banks will follow suit.”
Charity for women, girls, and families, Good Shepherd CEO Stella Avramopoulos also welcomed the policy initiative, noting that the last year has been particularly difficult for women and families experiencing financial hardship.
She said: “At Good Shepherd, we have witnessed firsthand how COVID-19 has created a newly vulnerable cohort of Australians, as well as exacerbating the hardship faced by those already experiencing financial insecurity.
“It is critical that we continue to develop and invest in safe, fair and affordable lending options to alleviate some of the pressure on those experiencing adversity, without burdening them with long-term debt that is difficult to repay.”
[Related: Westpac mortgages up $2.6bn over half]
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Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.