Every home loan application in Australia is checked against the household expenditure measure, known as HEM, a benchmark of typical living costs published by the Melbourne Institute. Lenders use whichever figure is higher, a borrower’s own declared expenses or the HEM benchmark for their household size, income, and location, which means trimming spending before applying does not always raise what a lender will approve.
What lenders actually ask for
A home loan application requires a detailed breakdown of living expenses across categories such as groceries, utilities, insurance, transport, childcare, school fees, and recurring subscriptions. Most lenders also request 3 to 6 months of bank statements, used to verify that declared figures line up with actual transaction history rather than an estimate.
Discrepancies between a declared budget and real spending on statements are one of the more common reasons an application gets delayed while a lender requests further information. Being specific and accurate from the outset, rather than rounding down, generally moves an application through underwriting more smoothly.
Self-employed borrowers and those with irregular income often face closer scrutiny here, since a lender is building a realistic picture of ongoing costs against income that can vary month to month. A clear breakdown of business versus personal expenses, alongside 2 full years of tax returns for most major lenders, tends to reduce back and forth requests during assessment.
The household expenditure measure explained correctly
HEM operates as a floor, not a ceiling. If a borrower’s declared expenses come in above the HEM benchmark, the lender uses the higher, actual figure, which reduces assessed borrowing capacity. If declared expenses come in below HEM, the lender still applies the higher HEM figure rather than the borrower’s lower number. Either way, spending less than HEM does not translate into a discount on assessed living costs.
The benchmark varies by household size, income band, and location, since living costs in a capital city differ from a regional area. Different lenders also apply different HEM tiers, some more conservative than others, so the same household with the same declared expenses can be assessed differently depending on which lender is used. This is a genuine, lender-specific policy difference rather than a marketing distinction.
If spending stays below HEM, will the lender use the lower figure instead?
No. Lenders assess against whichever figure is higher, the borrower’s declared expenses or the relevant HEM benchmark. A frugal household with genuinely low spending will still be assessed using the higher HEM figure, since HEM functions as a minimum rather than a reward for spending less.
Which expenses get scrutinised most closely
Recurring subscriptions, private health insurance, school fees, and buy now pay later services are commonly flagged during assessment because they represent ongoing, committed spending. Existing credit card limits are also closely examined. Most lenders assess the full limit on a credit card as a liability, calculated at around 3% of the limit per month, regardless of the actual balance owing or whether it is paid off in full each month.
This means an unused credit card with a $15,000 limit and a $0 balance can still be treated as roughly a $450 monthly liability at many lenders. HECS or HELP debt is treated similarly, assessed by most lenders as a monthly liability of around 1% to 3% of the outstanding balance, often higher than the actual compulsory repayment, and it can materially reduce borrowing capacity.
How changes before applying can affect the outcome
Reducing or cancelling unused credit card limits ahead of an application is one of the more direct ways a borrower can lower their assessed liabilities, since it is the limit rather than the balance that most lenders count. Pausing or cancelling buy now pay later accounts and reviewing recurring subscriptions are other adjustments worth exploring with a broker before submitting an application.
None of these changes remove the HEM floor, since the benchmark still applies regardless of how disciplined a household’s actual spending becomes. What they can do is prevent declared or verified expenses from pushing an assessment above the HEM benchmark unnecessarily. Because personal financial circumstances vary widely, anyone weighing these changes against their broader position may want to discuss the specifics with a broker or accountant before making decisions.
Key Takeaways
- Every home loan application is assessed against the household expenditure measure, HEM, and lenders use whichever figure is higher, the borrower’s declared expenses or the relevant HEM benchmark.
- HEM works as a floor, not a discount, so spending less than the benchmark does not lower the assessed living cost a lender applies.
- Credit card limits are typically assessed at around 3% of the limit per month regardless of the balance owing, which means an unused $15,000 limit can still reduce borrowing power.
- HECS and HELP debt is treated as a monthly liability by most lenders, commonly 1% to 3% of the outstanding balance, and materially affects how much a lender is willing to approve.
- Different lenders apply different HEM tiers, so the same declared expenses can produce a different assessed living cost depending on which lender is used, a genuine reason to compare more than one option.