Lenders are paying closer attention to everyday spending than ever before. At the centre of it all sits HEM (the Household Expenditure Measure).
With living costs rising and lender calculators evolving, your daily transactions may reduce your borrowing capacity, sometimes by a significant amount depending on your circumstances.
HEM explained simply
HEM is a benchmark for minimum household living costs, built from ABS data, CPI trends and Melbourne Institute modelling.
It groups spending into categories such as groceries, utilities and transport, and roughly 80% of Australian lenders rely on it.
These benchmarks are updated regularly to reflect inflation across essentials such as housing, food and energy.
Importantly, HEM sets the floor – even if you declare lower living expenses.
How lenders assess spending
Lenders generally assess the higher of HEM or your actual spending based on bank statements.
Subscriptions, food delivery, rideshares and dining out all stack up quickly, often pushing expenses well above HEM levels.
On top of this, lenders generally apply a serviceability buffer when assessing repayments, that can reduce borrowing capacity
Lenders continue to apply serviceability buffers when assessing applications.
Cost of living pressure isn’t easing
Inflation reached around 3.8% year on year in late 2025, driven largely by housing, food and energy costs.
Many economists expect these pressures to linger during 2026, that means HEM benchmarks continue to climb alongside them.
Lenders are also digging deeper: typically reviewing 3 to 6 months of transaction history, tightening expense assumptions and applying stricter treatment to variable income.
The result? A noticeable shift in borrowing power.
Borrowing capacity can be materially lower than it was in prior years, depending on income, spending and lender policy.
The real impact of daily spending
Take for example two couples with identical incomes and deposits.
One spends in line with HEM. The other spends an extra $600 a month on takeaways, subscriptions and lifestyle.
That level of spending may reduce borrowing capacity by a meaningful amount, depending on the lender’s assessment and your other commitments.
For illustrative purposes only, that’s $7,200 a year that, once stress tested with the 3% buffer, may reduce their borrowing capacity by $50,000 to $100,000
Actual outcomes will vary depending on lender and borrowing circumstances.
A few lesser known factors can amplify this further:
- Gambling transactions may be treated as ongoing expenses or risk indicators.
- Unused credit card limits are often assessed as fully drawn debt.
- Ongoing commitments such as school fees, gym memberships and club costs raise your baseline.
Lenders focus heavily on recent behaviour, so what you’ve done in the last few months carries the most weight.
How to align your spending
Many borrowers adjust spending in the lead up to an application. This can make a meaningful difference.
- trim discretionary expenses such as takeaways and unused subscriptions
- reduce or close unused credit facilities
- separate essential costs from lifestyle spending to build a clearer picture
HEM does allow for reasonable discretionary spending, however consistency and sustainability are key.
Why timing matters right now
With buffers holding firm, HEM rising and lender models tightening, timing has become critical.
Your spending today directly shapes your borrowing capacity tomorrow.
A pre-approval can provide an indicative view of your borrowing capacity, subject to lender criteria and your full financial assessment.
Curious what your borrowing power looks like through a lender’s lens? Let’s map it out.