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While looking at houses to buy can be exciting, the actual paperwork side of getting a mortgage for that home can be exhausting. When you apply for a home loan, there are several different measures banks use to try and make sure you’ll be able to pay it back.

One of these is the Household Expenditure Measure (HEM).

We’ll cover everything you need to know about HEM below to give you a better understanding of this crucial part of the home loan application process.

What is the Household Expenditure Measure (HEM)?

The Household Expenditure Measure is essentially a figure that represents the average amount of money households spend every year. Banks and lenders use the HEM to help get a picture of how much money mortgage applicants spend compared to other borrowers.

Weighing up the information applicants provide on their spending in comparison with the respective HEM figure can provide an indication of whether the applicant spends more or less than the HEM average.

Woman in glasses calculating expenses

How does a HEM calculator work?

There are different HEM categories that account for your location within Australia; the number of children you have; whether you’re single, married or de facto; and what your ‘lifestyle’ is. There are four different lifestyle levels based on an annual spending figure (not which tax bracket you fall into):

  • student
  • basic
  • moderate
  • lavish

In HEM there are eight different categories of households, each with its own average annual spending figure, to cater for different families and lifestyles.1 Lenders will match you up with your corresponding HEM household category and compare that figure with the financial information you provide.

What is the HEM based on?

HEM was developed by the Melbourne Institute and data from the Australian Bureau of Statistics (ABS) Household Expenditure Survey. HEM categorises over 600 items in the ABS survey as absolute basics, discretionary basics or non-basics.

  • absolute basics: as the name suggests, this covers things everybody needs like food, clothing, utilities, transport and communication costs.
  • discretionary basics: these items are things we can probably do without, like dining out, confectionery and junk food, alcohol, entertainment, and more.
  • Non-basics: includes nice luxuries like overseas holidays or hiring cleaners.

What other factors do banks look at for approving home loans?

Keep in mind, the HEM figure is just one thing lenders will analyse to get a better picture of your ability to pay back a loan. They’ll also look at your LVR, your credit score and more.

Is the HEM different to a living expenses calculator?

The key difference between the HEM and a living expenses calculator is that the HEM calculation is based on certain factors without your input. A living expenses calculator, or budgeting tool, is one you can use to assess your own budget.

Some lenders will ask you to perform a self-assessment using a living expenses calculator or form that they provide. You’ll fill out your expenses, typically based on a calendar year, and submit it to the lender. They can use your self-assessment in conjunction with your actual bank statements and the HEM calculator tool to determine your borrowing capacity.

Frequently asked questions

What if my expenses are different to HEM?

It’s entirely possible that your actual annual expenses could be quite different to the HEM average for your type of household. Banks will also look at your bank statements and recent transaction history and will use whichever amount is higher to help them see whether you can afford the mortgage repayments before they approve a loan.

What isn’t included in the HEM figures?

HEM doesn’t include your spending on rent or current mortgage repayments. While it covers the median spend on absolute basics, it only includes the 25th percentile spend on discretionary basics, and doesn’t include any spending on non-basics. It also doesn’t include things like:

  • Private school fees
  • Life insurance costs
  • Sickness and personal accident insurance costs
  • Superannuation
  • Alimony/maintenance payments
  • HECS debts
  • Loan and lease repayments

What are the negatives of the HEM?

There has been some controversy surrounding the Household Expenditure Measure in recent years because it doesn’t account for all spending, which means there is a chance that borrowers could be at risk of financial stress. In particular, criticism has been levelled at HEM because it underestimates how much people spend on non-essentials.

The Financial Services Royal Commission into the banks (2017-2019) investigated HEM. It noted that a targeted review by one of Australia’s key financial regulatory bodies APRA found banks assumed borrowers’ spending was equal to the relevant HEM figure for three out of every four home loans between 2016 to 2017.2

We can help you complete the home loan process

If you’re searching for a home loan but aren’t sure where to start, we can help you there.

We make the process easy, and our online home loan platform helps you compare home loan interest rates, fees, features and more. You can even go through the whole process from start to finish with us, and our in-house home loan experts are here to help you along the way and answer your burning questions.



1 Household Expenditure Measure. Melbourne Institute. 2021.
2 Interim Report: Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry – Volume 1. 201

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