What is the Household Expenditure Measure?
Your living expenses play an important part in how big your home loan should be, or even if you can afford one. So what is the Household Expenditure Measure (HEM) and why does it matter if you’re applying for a home loan?

Your living expenses play an important part in how big your home loan should be, or even if you can afford one. So what is the Household Expenditure Measure (HEM) and why does it matter if you’re applying for a home loan?
Key points:
- The HEM is a standard benchmark that some banks use to estimate people’s annual living expenses when considering home loan applications.
- The Household Expenditure Measure (HEM) can be used by lenders to assess borrowing capacity and help determine if applicants can afford a home loan.
- Whenever a person applies for a home loan, lenders are required by law to consider their living expenses.
What is the Household Expenditure Measure?
The HEM is a standard benchmark that some banks use to estimate people’s annual living expenses when considering home loan applications. HEM classifies more than 600 items in the Australian Bureau of Statistics’ Household Expenditure Survey as absolute basics, discretionary basics or non-basics:
- Absolute basics are most food items, kids clothing, utilities, transport costs and communications.
- Discretionary basics include take-away food, restaurants, alcohol and adult clothing and entertainment.
- Non-basics includes luxury services such as overseas holidays.
HEM is a net-of-housing costs measure, reflecting median spend on absolute basics plus the 25th percentile spend on discretionary basics. Rents and mortgage payments are not included.
How is HEM used?
The Household Expenditure Measure (HEM) can be used by lenders to assess borrowing capacity and help determine if applicants can afford a home loan. Separately, the Henderson Poverty Index (HPI) can be used to calculate living expenses. But not all lenders use these methods and some lenders have developed their own methods.
What types of living expenses are considered in a home loan application?
Some common living expenses you may need to provide an estimate of in a home loan application could include:
- childcare
- children and pets (childcare, sports, tuition, pet expenses)
- clothing and personal care
- communication (internet, phone bill)
- education
- entertainment and recreation
- groceries
- health and fitness
- insurance
- medical
- other regular outgoing expenses
- transport
- utilities.
Why are living expenses important in a home loan application?
Whenever a person applies for a home loan, lenders are required by law (under the National Consumer Credit Protection Act 2009 and related responsible lending regulations) to consider their living expenses, in order to provide a fuller picture of their financial situation and whether they’ll be able to pay back the loan. One way they can do this is through the use of the HEM, which is meant to be used as a benchmark figure only. Lenders are also expected to make inquiries of their own about a borrower’s current income and expenses.
Why is HEM controversial?
The use of HEM as a benchmarking tool has been criticised because of concerns that people were being approved for loans they couldn’t afford to repay. This is because there can often be a difference between borrowers’ estimated and actual expenses. Hypothetically, borrowers could struggle to meet their repayments if approved for a home loan following their living expenses (including non-essential items) being underestimated.
Historically, the grilling of one of Australia’s largest banks at the The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, revealed how shortcuts were being made in loan approvals and that living expenses were being underestimated in some cases. ANZ was found to have defaulted to using HEM in 73% of cases, instead of doing a deep dive into borrowers’ expenses.
The Commission also found that HEM was more useful to assess border-line borrowers and that it did not show the full picture of a borrower’s income and debt. The final report handed down stopped short of pushing for the HEM to be scrapped altogether, after several lenders had already started to move away from it.
Cover image source: Dean Drobot/Shutterstock.com
This article was reviewed by our Content Lead, Canstar Mandy Beaumont before it was updated, as part of our fact-checking process.

Alasdair Duncan is Canstar's Content Editor, specialising in home loans, property and lifestyle topics. He has written more than 500 articles for Canstar and his work is widely referenced by other publishers and media outlets, including Yahoo Finance, The New Daily, The Motley Fool and Sky News. He has featured as a guest author for property website homely.com.au.
In his more than 15 years working in the media, Alasdair has written for a broad range of publications. Before joining Canstar, he was a News Editor at Pedestrian.TV, part of Australia’s leading youth media group. His work has also appeared on ABC News, Junkee, Rolling Stone, Kotaku, the Sydney Star Observer and The Brag. He has a Bachelor of Laws (Honours) and a Bachelor of Arts with a major in Journalism from the University of Queensland.
When he is not writing about finance for Canstar, Alasdair can probably be found at the beach with his two dogs or listening to podcasts about pop music. You can follow Alasdair on LinkedIn.
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The comparison rate for all home loans and loans secured against real property are based on secured credit of $150,000 and a term of 25 years.
^WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.