The new policy will grant home loan customers entering hardship arrangements the option to build a savings buffer, and is set to be rolled out in the coming months.
Westpac will work with customers to create a savings buffer of at least $100 a month when calculating hardship payments.
Interest will continue to accrue on the home loan, and Westpac's hardship team will work with each individual customer to determine the amount they can free up within their budget to put into their buffer.
The big four bank said the initiative would mean customers could make smaller repayments to their mortgage, giving them the breathing space to save for unexpected expenses.
The measure is seen as a short-term strategy, used in conjunction with existing hardship support measures like payment deferrals, interest rate reductions, loan-term extensions, and referrals to financial counsellors.
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Westpac Director of Customer Vulnerability and Financial Resilience Catherine Fitzpatrick said the savings buffer was designed to help customers in severe financial stress keep their head above water.
“While most customers have resumed mortgage repayments following deferrals at the start of the COVID-19 pandemic, there are around 4,500 accounts where individuals and families require more tailored and flexible support to get back on their feet,” Ms Fitzpatrick 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."
Research from Westpac found one in two Australians have had to pay for unexpected bills in the past 12 months, like auto repairs (24%), home repairs (20%), medical bills (20%), and pet emergencies (11%).
Two in five said they would feel unprepared financially to cover these emergency expenses.
Ms Fitzpatrick said Westpac hoped the policy would help customers to steer clear off high interest loans and payday loans to help pay off their mortgage.
“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," she said.
“We encourage customers who are in financial difficulty to call us as soon as possible so we can consider what options may work for their personal situation."
"A really sensible initiative"
Westpac's new policy is supported by Financial Counselling Australia (FCA), who have been advocating for lenders to help customers in financial strife to have some money left over for other expenses.
FCA chief executive Fiona Guthrie said the savings buffer was in the best interest of most customers as well as Westpac, and hoped other lenders would follow suit.
“When creditors expect every single cent of a person’s uncommitted income to go toward repaying debt, all they are doing is setting people up to fail," Ms Guthrie said.
"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."
Good Shepherd CEO Stella Avromopoulos also welcomed the initiative, noting how hard COVID had been for vulnerable families.
“At Good Shepherd, we have witnessed first-hand how COVID-19 has created a newly vulnerable cohort of Australians, as well as exacerbating the hardship faced by those already experiencing financial insecurity," Ms Avromopolous said.
“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.”
Photo by Scancode Productions on Unsplash
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