Workout Periods Explained: 2025 Guide for Australian Borrowers

When financial hardship strikes, understanding your options can make all the difference. One term every Australian borrower should know in 2025? The ‘workout period.’ As the cost-of-living and interest rates continue to challenge household budgets, knowing how workout periods work can help you navigate rough financial waters with confidence.

What is a Workout Period?

A workout period is a defined timeframe in which a lender and borrower work together to resolve missed payments or restructure a loan after the borrower has fallen behind. Unlike the immediate threat of foreclosure or repossession, the workout period offers a window for negotiation, adjustment, and financial recovery. In Australia, workout periods are most commonly associated with mortgages, business loans, and personal credit agreements.

Key characteristics of a workout period in 2025 include:

• Temporary Relief: Repayment obligations may be paused, reduced, or restructured.
• Active Negotiation: Lenders and borrowers collaborate on a plan to bring the loan back into good standing.
• Regulatory Oversight: New ASIC guidelines require clear communication and fair treatment during hardship negotiations.

Why Are Workout Periods More Relevant Than Ever in 2025?

Australia’s financial landscape in 2025 is shaped by stubbornly high inflation, a cooling property market, and rising household debt. According to recent APRA data, mortgage arrears have edged higher, prompting banks to increase their focus on hardship arrangements and workout periods.

Policy Update: In early 2025, the Australian Banking Association revised its Code of Practice, strengthening borrowers’ rights during hardship and mandating that lenders offer genuine workout solutions before proceeding to foreclosure or forced asset sales.

For example, if a Sydney homeowner loses their job and falls two months behind on their mortgage, the bank is now required to proactively offer a workout period. This could involve:

• Switching to interest-only payments for six months
• Offering a payment holiday, with missed amounts capitalised into the loan
• Extending the loan term to reduce monthly repayments

Similar principles apply to business loans, especially for SMEs hit by supply chain shocks or unexpected downturns.

How to Make the Most of a Workout Period

Successfully navigating a workout period is about more than simply accepting your lender’s first offer. Here’s how Australians can protect their financial wellbeing in 2025:

• Act Early: Don’t wait until you’re several payments behind—contact your lender as soon as hardship looms.
• Prepare Documentation: Have your budget, income statements, and evidence of hardship ready to support your case.
• Negotiate Clearly: Ask for the specific relief you need—whether that’s reduced repayments, a term extension, or temporary interest-only terms.
• Monitor Your Credit: Workout periods may impact your credit report, but 2025 reforms require lenders to report hardship arrangements more fairly and transparently.
• Get Everything in Writing: Always confirm the terms of your workout agreement by email or official letter from your lender.

Real-world example: A Melbourne café owner facing a cashflow crunch after a rent hike negotiates a three-month repayment pause with their business lender. Thanks to the new regulatory rules, the lender cannot pursue legal action during the agreed workout period, and the business is able to recover without the threat of immediate closure.

The Future of Workout Periods: Trends and Outlook

Looking ahead, financial experts predict that workout periods will become even more structured, with digital platforms streamlining hardship applications and automated alerts prompting borrowers to seek help earlier. Lenders are investing in hardship teams and digital tools, aiming to prevent defaults before they spiral out of control.

In 2025, ASIC is piloting a new ‘Hardship Resolution Dashboard’—a secure online hub where borrowers can track the status of their workout arrangement and upload required documents, making the process more transparent and less stressful.

Key trends to watch:

• More tailored solutions for mortgage and small business borrowers
• Greater transparency in credit reporting during hardship
• Government and industry collaboration to support financially vulnerable Australians

Conclusion: Be Proactive, Be Informed

Workout periods are a crucial safety net for Australians facing financial difficulty in 2025. Whether you’re struggling with a mortgage, business loan, or personal credit, understanding your rights—and acting quickly—can help you avoid long-term damage and keep your financial future on track.