Household Expenditure Measure: how HEM affects your home loan

You've added up the bills, but the bank says your living costs are higher. I'd check whether it's using a minimum spending figure before trying to cut another $50 from groceries. The Household Expenditure Measure, or HEM, is one benchmark lenders use when deciding how much you can borrow.

You still gain from spending less. It just may not change the bank's calculation if your budget is already below the benchmark. Here's how I'd separate those 2 questions.

Think of the assessment in 3 parts. First, the lender compares the living expenses covered by its benchmark with the relevant benchmark amount and generally uses the higher figure. It then adds costs it assesses outside that benchmark. Your other debts and financial commitments also need to be allowed for.

This is why getting the categories right matters. A school bill or insurance premium assessed separately can still reduce what you have available for repayments, even if your groceries and other everyday spending sit below HEM.

These are example amounts, so use your own bills when putting a budget together. Cutting the $2,800 of everyday spending to $2,600 would save you $200 each month, but the assessment above would still use $3,000 plus the separate costs.

If an expense assessed separately falls by $100, you could have $100 more monthly surplus in the lender’s calculation. How much extra you could borrow depends on the loan term, assessment rate and the rest of your application.

The Melbourne Institute produces HEM and publishes it quarterly. It uses the Australian Bureau of Statistics' Household Expenditure Survey, with adjustments linked to the Consumer Price Index.

It combines the median spending on absolute basics, such as groceries and utilities, with the 25th percentile of spending on discretionary basics, such as eating out and entertainment. That gives lenders a measure of modest spending. It isn't the average household budget or a poverty line.

Living costs reduce the income available for mortgage repayments. A lender needs a credible estimate of those costs before deciding how much you can borrow.

APRA's residential mortgage guidance expects banks using expense benchmarks to compare appropriately scaled benchmark amounts with declared expenses, rather than rely on the benchmark alone. The lender's implementation and your circumstances affect the final assessment.

For example, if a relevant benchmark were $3,000 a month and your comparable expenses were $3,500, declaring $2,500 wouldn't make the higher actual spending disappear. If you spent $2,500, the lender could still apply the $3,000 benchmark.

The number of adults and children in your household, your income and the way the benchmark is calculated can all change the figure. Banks update their calculations too, so an amount quoted for another household or an old application may not apply to you.

There isn't one public table we can give you that accurately states every bank's current HEM for every borrower. We'll calculate the application using the lender's current requirements and compare that with your actual budget.

Your own comfort level matters too. Being approved for a loan doesn't mean the money left in the bank's calculation will cover every personal goal or future expense you have in mind.

The exact categories and treatment differ. The aim is to avoid leaving costs out or counting the same expense twice. Our bank-statement guide explains the evidence that can support the figures.

For example, Macquarie's expense guidance, checked on 11 September 2026, puts private health insurance and private school fees under additional living expenses. It puts strata fees for the home you live in under general living expenses, while investment-property strata goes under investment expenses.

The bill still needs to be declared. What changes is where it enters the calculation. We’ll compare how suitable lenders treat your costs, especially if you have substantial school fees, insurance premiums or property expenses.

Review transaction accounts and credit cards together. A card payment from your bank account is a transfer towards card spending, so don't count both the repayment and all the underlying purchases as separate living expenses.

Separate transfers between your own accounts from actual spending. Include cash spending and bills paid from a different account, then identify genuine one-off items and the costs likely to continue.

A $1,200 annual insurance bill needs a $100 monthly allowance. A $900 quarterly bill needs $300 a month. Using those averages gives a more useful picture than copying one unusually cheap month's transactions.

Start with your household's take-home pay and the costs that will continue after buying. Here is a worked monthly budget for a household considering a $3,500 repayment.

That leaves $1,000 in the household's own budget. If the lender assessed living costs at $3,500 instead of $3,000, that change alone would reduce the amount left to $500, before any other assessment differences. Those spending figures are chosen for this example; they are not published HEM amounts.

The lender also applies its income rules, debt calculations and a higher assessment rate. We can explain that result alongside your own budget. You still need to decide whether the money left will cover your savings goals and the expenses likely to change.

Put the figures into Moneysmart's budget planner, including annual bills and known changes after you buy. Choose any spending reductions you can maintain, then compare the plan with your next pay cycle. Adjust the figures where needed and keep the supporting statements together.

The planner helps with your household cash flow. We use the lender's assessment separately to work out the loan options.

Reducing ongoing expenses can help your savings and cash flow. Whether it also increases borrowing capacity depends on whether the lender uses the reduced actual expense, a higher benchmark or another limit in the application.

If assessed costs fall, there still isn't a universal rule that each $100 saved adds $15k or $20k to your loan. The rate, term, income treatment, other debts and lender limits all affect the result.

Suppose you estimate groceries at $500 a month but the account history shows $1,200. First check what the transactions contain: groceries, household items, spending for another person or a one-off event may have been grouped together.

If $1,200 is the real ongoing cost, use it. If part of the amount won't continue, explain why and provide evidence where needed. Don't change a category merely to make the application fit.

A clear budget helps you avoid discovering a gap after you've signed a contract. It also shows whether the proposed repayment is comfortable once the bank has finished its assessment.

If your spending is well below the benchmark, have the explanation ready. You might share household costs, have an expense paid by an employer, or have stopped paying for something that appears in older statements. Show what applies to you and whether it will continue. A low figure can prompt questions even when the lender uses a higher benchmark to calculate the loan.

Your future costs may differ from your current statements. Rent may end when you move into your own home, while rates, building insurance and maintenance begin. Buying an investment while continuing to rent is different: your rent remains an expense.

Childcare, school fees, parental leave and changes in commuting can also affect the budget. Tell us about known changes early so they can be included accurately.

Our rentvesting guide and repayment guide help you compare the housing costs that continue after purchase.

Buying a home to move into is different from buying an investment while staying with family. Some lenders allow an assumed housing cost, often called notional rent, even when you don't currently pay rent.

Macquarie's published example is $650 a month per household when buying or refinancing an investment property while living with family or friends rent-free or at unusually low rent. That rule isn't a blanket charge for everyone buying their own home.

Tell us where you'll live after settlement so we can use the right housing costs.

A loan in one name doesn’t necessarily mean the bank assesses a single-person household. Your partner, dependants and shared expenses can still affect the calculation. If your partner pays part of the household costs, tell us how you split them and what evidence is available. We can then check the lender’s requirements before choosing the loan structure.

An unused credit-card limit can affect the debt assessment even when the balance is zero. Reducing or closing a facility may help, but the result is lender-specific and needs to be compared with your wider cash needs.

Macquarie's published credit guidelines assess credit cards at 45.6% of the limit each year, equivalent to 3.8% a month. On a $20k limit, that is $760 a month in the borrowing assessment, even with nothing owing.

At the same assessment percentage, reducing the limit to $5k would bring that figure down to $190, a difference of $570 a month.

The bank allows for that amount when testing the home loan; your card statement sets out what you need to pay. We’ll check the lender’s current calculation and the limit you actually need before suggesting a change.

The same care applies to HECS or HELP debt. It needs to be considered separately from ordinary living expenses. Paying it off may free assessed income while using money you need for the deposit. Calculate both sides before making a large payment.

Don't take out new credit to make an account balance look stronger. Deposit funds and debts both need to be disclosed.