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Why does the bank ignore my actual budget?

Bayley Clarke · Mortgage broker on the road · Last checked 3 September 2026 · 4 min read

The ninety second version. The rest of this page is the detail underneath it.

What HEM is

The banks use what's called the Household Expenditure Measure, HEM for short. It's a table, published I believe every quarter, that looks at average household spending based on whether you're single, whether you're a couple, and how many kids you may have in the house. They look at your income and go, based on your income and your household, we expect you to spend this much per month.

It's not a judgement about you. It's a floor. The bank's regulator wants every lender using a consistent, defensible living expense figure, and HEM is the industry's answer. Your income bracket, your postcode band and your household shape drop you into a cell in the table, and that cell has a number.

Lower than HEM: it doesn't help

If you're spending less than that, and even if we can prove it through bank statements for the last three months that you've been spending less, the banks don't care. They're going to use the HEM figure regardless. So your actual budget doesn't matter from the bank's perspective if it's lower.

The rule at every lender is the same: the higher of what you declare and HEM. Declare $2,000 a month against a HEM of $2,800 and the bank assesses you at $2,800. Declare too far under, more than about 30% below the benchmark at most lenders, and you'll get a query asking you to explain, which slows things down without changing the number.

There are two places where the structure does move. If you're a single applicant with a partner who isn't on the loan, a handful of lenders will assess you on a single person's HEM provided your partner earns enough to look after themselves. The rest force the couple figure on you. And a few lenders count your strata or body corporate fees inside the HEM comparison rather than adding them on top, which helps apartment owners.

Higher than HEM: this is where it bites

If you're spending more than the HEM figure, then of course that's really going to impact how much you can borrow. The bank reads your statements, adds up the categories, and if the real number is above the benchmark, the real number is what goes in. Every $100 a month of expenses knocks roughly $15,000 to $20,000 off what you can borrow, so a loose three months costs real money.

Some things always sit on top of HEM, at every lender: private school fees, personal insurance premiums, child support. HEM doesn't include them, so they're added regardless. And your debts, credit card limits, car loans and HECS, are separate again. HEM is living expenses only.

So for you that means it's probably going to be important to tidy up your personal budget three months before you apply for a home loan, to make sure it isn't materially impacting how much the banks will let you borrow. Three months, because that's the statement window most lenders read. Cancel what you don't use, pause the discretionary stuff, and let the statements show it.