Every borrower has a story. A lifestyle. A rhythm of spending that pulses through their grocery receipts, café habits, streaming subscriptions, and utility bills. And yet, when you sit down with a lender, this vibrant, complex financial life is often distilled into four haunting letters: HEM — the Household Expenditure Measure.
What is HEM?
To put it plainly, the HEM is a benchmark — a baseline of “reasonable” household spending based on Australian Bureau of Statistics data, segmented by income, location, marital status, and dependants. Originally designed not as a mortgage filter but as a statistical tool, it has become one of the most powerful gatekeepers in modern lending.
In fact, I’d argue that the HEM has become Australia’s unofficial lifestyle audit. Yet most Australians have never even heard of it.
HEM: A Brief History of a Benchmark
The Household Expenditure Measure was developed by the Melbourne Institute as a way to estimate what Australian households spend on a basic standard of living. It covers everything from food and utilities to clothing, transport, and insurance.
It’s not extravagant. It doesn’t assume private school fees, European holidays, or a penchant for truffle oil. In many cases, it’s bare-bones. And for a long time, HEM functioned quietly in the background — a passive check on whether your stated expenses were, shall we say, optimistically understated.
In the aftermath of the 2017–2019 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, HEM went from backstage to centre stage.
Commissioner Hayne grilled the big banks on their heavy reliance on HEM over actual, verified living expenses. It was revealed that nearly three-quarters of home loan applications at the time defaulted to HEM rather than using the borrower’s real-life data. In other words, the banks were flying blind — and consumers were paying the price.
[j3]How Does HEM Actually Work Today?[/h3]
HEM categorises households by size (single, couple, family), location (metro vs regional), and income brackets, and then assigns an expected monthly expenditure.
So, for example, a single adult in Sydney earning $85,000 might be assessed as having a baseline spending figure of around $2,200/month, even if they’re frugal and living on $1,400.
Banks use this baseline to cross-check your declared expenses. If your actuals fall below the HEM, they’ll often override them with the benchmark — under the logic that you’re either underestimating, or you’re living unsustainably.
But here’s the twist: many lenders are now moving beyond HEM, embracing a more nuanced approach — bank statement analysis.
Thanks to Open Banking, AI, and digital assessment tools, some banks and fintech lenders now read your actual transactional data to assess your true lifestyle habits — right down to your Deliveroo history.
If HEM is the fiscal equivalent of the BMI index — a blunt instrument with broad generalisations — then bank statement assessment is the DNA test. More accurate. More personal. And occasionally, more confronting.
Income: It ’s Not Just What You Earn, But How You Earn It
Of course, your ability to service a loan is not just about spending — it’s about income. But not all income is created equal in the eyes of lenders.
Let’s break it down:
🏡 Rental Income
Most lenders accept only 75–80% of gross rental income, assuming periods of vacancy and costs. Some lenders are more generous if the property is positively geared or in a high-demand location.
📈 Investment & Dividend Income
Highly variable, often seasonal, and tied to market performance — lenders generally include up to 80% of this income. Expect to provide two years of statements.
🕒 Overtime & Shift Allowances
In health, policing, and logistics, overtime is core income. Most lenders will accept it with consistent history (typically 6–12 months). Some are stricter with volatile industries.
👩💼 Secondary Employment
If it’s been held for 12 months or more, secondary jobs can count. But lenders want stability, not a side hustle that’s come and gone with the seasons.
🧑⚕️ Government Benefits
Some lenders accept Centrelink payments like Family Tax Benefit A & B, Carer’s Allowance, or Parenting Payment — especially when they’re not the primary source of income.
How Much Can I Borrow?
How long is a piece of string? We don’t like this question because every individual really is very different. We’ve had clients that make $500k per year that couldn’t borrow a much as somebody that makes #120k per year. We really do have to assess the circumstances of each individual on a case-by-case basis, so any number we publish here or elsewhere really is just general guidance.
APRA’s ongoing surveillance of lending practices revealed a jaw-dropping insight: some lenders were willing to lend up to 50% more than others, even for similar borrower profiles.
As a general rule, most lenders will offer between 5 and 6.5 times your gross annual income — but this is a moving target, influenced by interest rates, policy settings, and risk appetite.
Want a ballpark?
Income, and Typical Max Loan (Owner-Occupied)
- $80,000 ~$400,000 – $520,000
- $120,000 ~$600,000 – $780,000
- $180,000 ~$900,000 – $1.17M
But remember: just because you can borrow it doesn’t mean you should. HEM plays a vital role in making sure you don’t end up house-rich and cash-poor.
The Psychology of HEM: A Mirror, Not a Judgement
Many borrowers get frustrated with HEM: “But I live with my parents!” or “I don’t spend that much!”
And those arguments are often valid.
But HEM isn’t designed to reflect your actual spending — it’s designed to protect lenders from the risk that your lifestyle isn’t sustainable long-term. It’s a floor, not a ceiling. A safety net, not a set of shackles.
And it’s changing.
We’re now entering a post-HEM world, where data-driven lending is replacing rule-of-thumb proxies. But until it’s gone entirely, HEM remains a quiet, powerful presence in your home loan journey — part safety check, part blunt instrument.
Know Your Spending
As Socrates famously said, “An unexamined life is not worth living.” And nowhere is that more true than in your mortgage application.
Whether the bank’s using HEM, your actual expenses, or a combination of both, your goal as a borrower should be clarity, honesty, and preparedness. Understand how you spend. Know how your income is viewed. Work with a broker who can explain the subtle differences between lenders — not just the interest rate, but their philosophy.
Because in lending, as in life, the devil’s in the detail. And sometimes, the detail is a four-letter acronym quietly ruling your financial future.
