Most people think their borrowing power comes down to income and the size of their deposit. In reality, lenders are scrutinising everyday spending more closely than most borrowers realise — and the benchmark doing most of that work has a name most people have never heard of: HEM.
What HEM actually is
The Household Expenditure Measure is a standardised benchmark for minimum living costs, built from Australian Bureau of Statistics data and updated quarterly by the Melbourne Institute. It sets a floor for what a household “should” be spending based on income and family size — and around 80% of Australian lenders use it as part of their serviceability assessment.
Here’s the part that surprises people: lenders assess your living expenses at whichever is higher — HEM or your actual declared spending. HEM isn’t a discount you get; it’s a floor. If your real spending is above it, the higher, real number is what counts against your borrowing power.
Where daily spending bites
Subscriptions, food delivery, rideshares and regularly dining out add up fast, and lenders are increasingly looking at 3–6 months of actual transaction history rather than taking a self-declared expenses figure at face value.
Here’s a simple illustration: two applicants, same income, same deposit. One keeps spending roughly in line with HEM. The other spends an extra $500 a month on takeaway, subscriptions and lifestyle costs — $6,000 a year. Once that’s stress-tested against a serviceability buffer (lenders typically assess your ability to repay at a rate a few percentage points above the actual rate on offer), that gap alone can reduce borrowing capacity by tens of thousands of dollars, depending on the lender’s exact buffer and policy.
A few spending patterns tend to catch people off guard:
Gambling transactions, even modest and occasional ones, are sometimes flagged as an ongoing risk indicator rather than a one-off. Unused credit card limits are often treated as fully drawn debt, whether you use them or not — a $20,000 limit you never touch can still count against you. And ongoing commitments like school fees, gym memberships and club subscriptions raise your baseline living costs whether or not you consider them essential.
Why this matters more right now
Cost of living pressure hasn’t eased. Annual inflation was 4.0% in the 12 months to May 2026, with housing costs up 6.5% — the biggest single driver. As HEM is updated quarterly to track cost-of-living movements, the benchmark itself keeps climbing, which means the bar for “acceptable” spending moves too, even if your habits haven’t changed.
What you can actually do about it
Lenders weight recent behaviour most heavily — what shows up in your last three to six months of statements carries the most weight, more than a broad annual average. In the lead-up to an application, trimming genuinely discretionary spending (takeaway, unused subscriptions, buy-now-pay-later balances), closing credit cards or limits you don’t use, and keeping essential costs separate from lifestyle spending on your statements can make a measurable, sometimes significant, difference to what a lender is willing to approve.
The takeaway
Your spending today isn’t just about what you can afford right now — it’s data that directly shapes how much you can borrow tomorrow. A pre-approval gives you an indicative view, but it’s still subject to full lender assessment and policy at the time you apply. If you’re planning to buy in the next 6–12 months, it’s worth getting your spending pattern reviewed before you start looking, not after you’ve found the place.
General information only, current as at July 2026 — not personal financial advice. HEM benchmarks, serviceability buffers and lender policy vary and are updated regularly; get advice specific to your situation.
