Household Expenditure Measure (HEM)
The Complete Guide for Australian Home Loan Borrowers 2026
What HEM is, how lenders use it, and what it means for your borrowing capacity in 2026.
Who this guide is for
01
First home buyers
HEM affects how much you can borrow. Knowing what it is before you start house hunting means you are looking in the right price range, not finding out afterwards it was always out of reach.
First home02
Refinancers
Rates rose three times in 2026. The HEM on your refinance today is higher than when you first borrowed. Strong equity helps, but the serviceability calculation is tighter than you might expect.
Refinancing03
Investors
Investment loans use the same HEM floor for personal living expenses. Rental income is shaded, property costs sit on top, and your serviceability is tested at the same 3% buffer rate.
InvestmentDefinition
What is HEM?
A floor figure that lenders use when calculating what you can borrow
The Household Expenditure Measure is a quarterly benchmark published by the Melbourne Institute of Applied Economic and Social Research. Built in 2011, it gives lenders a standardised floor for living costs across different household types and income bands. It is not average spending and not a survival minimum. The benchmark sits somewhere between the two, recalibrated every three months.
The underlying data comes from the ABS Household Expenditure Survey, which covers more than 600 spending categories and runs every six years. Between surveys, the Melbourne Institute adjusts the figures in line with CPI. Most years, the figure goes up.
The tables are not public. The Melbourne Institute distributes them commercially through Perpetual Digital, and lenders subscribe to access them. The number your bank uses will not be disclosed to you during the application.
How it works in practice
When you apply for a home loan, you declare your monthly living expenses. The lender compares your figure against HEM for your household profile and income band. If yours is higher, they use your number. If theirs is higher, they use HEM. The higher figure is always what goes into the serviceability calculation.
Mechanics
How lenders use HEM
How the serviceability test actually works
The serviceability test runs in one direction. Take gross income, subtract tax and compulsory deductions (including HECS-HELP repayments if you have them), subtract committed expenses like credit card limits and existing loan repayments, subtract living expenses at the higher of HEM or your declared figure, and subtract the proposed new loan repayment at the stress-tested rate. What remains needs to be positive.
The stress-test rate matters more than the advertised rate. The RBA cash rate sat at 4.35% following three rate rises in 2026. Standard variable rates landed in the 6.75–7.25% range. With the APRA 3% buffer added, new borrowers get assessed at around 9.75–10.25%.
Two things are squeezing borrowing capacity at the same time in 2026. Higher assessment rates mean each dollar of debt takes more income to service. Higher HEM figures mean less income is left over. Borrowers who took out loans in 2020 and are refinancing now often find the numbers are tighter than they expected.
"The benchmark assessed against your application in 2026 is higher in dollar terms than it was in 2022, and it operates alongside a ~10% stress-test rate. Both are working in the same direction."
JMD Mortgages, March 2026
Structure
What HEM measures
Three tiers, one set deliberately low
HEM splits household spending into three categories, and each one is measured differently.
Supermarket food, children's clothing, utilities, transport, and communications. HEM uses the median spend, the midpoint across Australian households.
Takeaway food, restaurants, alcohol, adult clothing, entertainment, and childcare. Only the bottom quarter of spend. That is the deliberately conservative part.
Overseas holidays, gardeners, luxury services, premium subscriptions. Not in the HEM figure at all.
These are assessed on top of HEM and sit outside the benchmark entirely
Current environment
The 2026 context
Why the same household borrows less today than it did three years ago
In 2020 and 2021, when the cash rate sat near zero, HEM was a relatively minor factor in serviceability calculations. Assessment rates were low enough that borrowing capacity was broad regardless of where HEM sat.
That changed. The RBA raised the cash rate to 4.35% on 5 May 2026, its third consecutive increase this year. Standard variable rates now sit in the 6.75–7.25% range. With the APRA buffer, the stress-test rate sits at approximately 9.75–10.25%.
HEM has moved the same way. The benchmark adjusts quarterly to reflect inflation. Four years of increases in food, utilities, and transport have pushed the figures up across every household profile and income band. The HEM applied to your mid-2026 application is higher than the same calculation would have produced in late 2022.
The result: both are pushing in the same direction at once. Higher rates mean each dollar of debt requires more income to service. A higher HEM means less income is left over. And neither is likely to reverse quickly.
Reference figures
Indicative benchmark figures
What HEM roughly looks like across household types
Industry estimates only. The actual Melbourne Institute tables are proprietary and not published. Figures below are approximate and will vary by lender, income band, and location.
| Household type | Est. monthly (mid income) | Per additional child | Note |
|---|---|---|---|
| Single, no dependants | $1,800–$2,200 | — | Varies by income band |
| Couple, no dependants | $2,400–$3,000 | — | Metro and regional differ |
| Couple, one child | $2,900–$3,400 | +~$350/month | Per benchmark estimates |
| Couple, two children | $3,100–$3,800 | +~$700/month total | Actual costs often higher |
| Single parent, one child | $2,400–$3,000 | +~$490/month | Higher per-child than couples |
The benchmark scales with income. A borrower on $80,000 has a lower HEM than someone on $200,000. That creates an odd situation: a high earner who genuinely spends very little may still find HEM is the binding number, not their actual expenses.
Case studies
How it plays out
Four borrower profiles and what HEM does to each one
Situation
Spends $1,500/month. Declares $1,500.
Outcome
HEM applied at $2,500+. Borrowing capacity calculated on the higher figure.
Situation
Estimates $2,800/month. Bank statements show $3,400.
Outcome
Bank adjusts to $3,400. Borrowing capacity reduced accordingly.
Situation
Declares $3,100/month, confirmed by statements. HEM = $3,000.
Outcome
Declared figure applies. Application straightforward.
Situation
HEM = $2,100. HECS and lease assessed on top.
Outcome
Committed expenses compound. Borrowing capacity reduces beyond HEM alone.
Legal background
The Westpac case
The court ruling that clarified how lenders can rely on HEM
In 2019, ASIC commenced proceedings against Westpac, arguing the bank's reliance on HEM without verifying actual declared expenses breached responsible lending obligations under the National Consumer Credit Protection Act 2009 (Cth).
Case reference
Australian Securities and Investments Commission v Westpac Banking Corporation [2019] FCA 1244
Federal Court, Justice Perram, 13 August 2019. Known as the "wagyu and shiraz" case after his Honour observed that a borrower who eats wagyu beef every day washed down with the finest shiraz can make do on more modest fare if they really want their new home.
Westpac won at first instance. The Full Federal Court then dismissed ASIC's appeal 2:1 on 26 June 2020. Justices Gleeson and Lee held that the NCCP Act does not require lenders to use declared living expenses verbatim in their unsuitability assessment. ASIC did not seek further appeal.
The practical effect: lenders are legally entitled to use HEM as a floor and can assume borrowers will cut back on discretionary spending once they are servicing a mortgage.
Royal Commission findings
A KPMG review found 73% of ANZ home loan assessments had defaulted to HEM without deeper verification. ANZ CEO Shayne Elliott confirmed the figure in evidence and committed to reducing that reliance. Commissioner Hayne's final report (February 2019) found sole reliance on HEM fell short of responsible lending standards. All four major banks have since moved to cross-check declared expenses against at least three to six months of bank statements.
Preparation
What actually moves the dial
Where to focus your preparation, and where not to bother
- Close unused credit card limits. Each $10k of limit is treated as roughly $300/month in committed expenses, regardless of balance. Closing $20k of unused limits can make a real difference to your borrowing capacity.
- Pay out existing debt. Personal loans, car finance, and BNPL accounts (Afterpay, Zip, Klarna) sit on top of HEM. BNPL came under national credit regulation in 2025, so open accounts are now assessed as credit liabilities.
- Annotate one-off expenses. Emergency dental, a broken appliance, a one-off trip: these can be excluded from your monthly average. Print 3–6 months of statements and mark anything not representative of normal spend.
- Work with a mortgage broker. Not all lenders apply HEM the same way. A broker with a wide lender panel can find whose model works best for your profile.
- Cutting discretionary spending for a few months. HEM already uses the 25th percentile for discretionary spending. There is no reward in the serviceability calculation for spending below that number.
- Cancelling subscriptions and memberships. These sit in the discretionary benchmark at conservative levels already. Clearing a $15,000 personal loan has a much larger effect than removing a streaming subscription.
Action plan
Before you apply
What to do in the months before you apply
Work through these in order of impact, not order of ease.
Common questions
Common questions
What borrowers ask most often about HEM
Can I find out what HEM figure my lender is using?
Not directly. The figures are proprietary. You can request a breakdown of how your borrowing capacity was calculated. That will show you the living expense figure applied, but not the underlying table. What you can do is ask your broker to run the numbers across multiple lenders, which will show you how they differ.
Is HEM the same at every bank?
No. Most major lenders use the Melbourne Institute figures as a starting point, but apply them differently. Some use HEM as a hard floor. Some layer internal benchmarks on top. Some calibrate income bands more conservatively than others. This is one of the reasons the same borrower can get materially different borrowing estimates from different lenders.
Does HEM apply to investment loan applications?
Yes. Investment loans go through the same serviceability assessment. Lenders also factor in expected rental income, typically at 80% of gross rent, and the ongoing costs of holding the investment property. HEM applies to your personal living expenses on top of all of that.
What if my declared expenses are higher than HEM?
Then lenders use your declared figure. Accurate declaration is always the right approach. Understating expenses to come in below HEM is counterproductive: lenders cross-check declarations against bank statements, and discrepancies make applications more complicated, not less.
Does my location affect the benchmark?
Yes. Metro households in Sydney and Melbourne typically have a higher benchmark applied than regional borrowers at the same income level, reflecting the higher cost of living in major cities across most expense categories.
What is the Henderson Poverty Index and is it still used?
The Henderson Poverty Index is an older benchmark from the 1970s built around a minimum poverty-line standard. HEM came in 2011, uses substantially more data, and is calibrated to a modest but adequate standard rather than a poverty line. Most borrowers will not encounter the Henderson Index in a modern application.
The bottom line
Prepare the right things. Borrow with confidence.
HEM is not the problem. It exists because lending without any floor on living expense assumptions produces poor outcomes. HEM gives lenders a consistent baseline, and most of the time it does its job quietly in the background.
HEM operates out of sight. You are never told the number, and it is already applied before you can check it. Three rate rises in 2026 and HEM figures at multi-year highs: that number matters more now than it has in years.
Reduce committed expenses where you can. Work with a broker who runs your numbers across multiple lenders. And do not let a lender's maximum figure become your purchase target. Borrow what you actually need.
This guide contains general information only and does not constitute financial advice, credit advice, or any recommendation to act. Indicative HEM figures are industry estimates only. Actual benchmarks are proprietary and vary by lender. Speak with a licensed mortgage broker or financial adviser before making any borrowing decision.
Sources & references
- 01Melbourne Institute of Applied Economic and Social Research — Household Expenditure Measure (quarterly benchmark, distributed via Perpetual Digital)
- 02ASIC v Westpac Banking Corporation [2019] FCA 1244 — Federal Court, Perram J, 13 August 2019
- 03ASIC v Westpac Banking Corporation [2020] FCAFC 111 — Full Federal Court, 26 June 2020, Gleeson and Lee JJ majority
- 04Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry — Final Report, Commissioner Kenneth Hayne (February 2019)
- 05APRA Prudential Practice Guide APG 223 — Residential Mortgage Lending (December 2022)
- 06Reserve Bank of Australia — Cash Rate Decision Media Release, 5 May 2026
- 07National Consumer Credit Protection Act 2009 (Cth) — responsible lending obligations, ss 128–133
- 08JMD Mortgages, 'How Banks Calculate Your Living Expenses: The HEM Benchmark Explained', March 2026
- 09KPMG review of ANZ HEM assessment practices, presented at Royal Commission hearings (2018)
