When you apply for a home loan, most people assume the bank mainly looks at how much you earn. While income matters, there’s another number quietly doing a lot of heavy lifting behind the scenes: the Household Expenditure Measure, or HEM.
The HEM is a benchmark used by many Australian lenders to estimate what it reasonably costs your household to live. It helps banks decide whether you can afford your mortgage repayments not just today, but if interest rates rise in the future.
What exactly is HEM?
HEM is based on data from the Australian Bureau of Statistics and is maintained by the Melbourne Institute. It looks at spending across more than 600 everyday items and groups households by income level, household size, and whether you have children.
Importantly, HEM isn’t about luxury living. It’s designed to represent “modest but adequate” living costs, not the bare minimum, but not a lavish lifestyle either.
What does count in the HEM?
HEM includes a mix of essential and limited discretionary spending. Broadly, it covers:
Absolute basics, such as:
- Groceries and basic food
- Utilities like electricity, gas and water
- Transport costs (fuel, public transport)
- Phone and internet
- Children’s clothing
Discretionary basics, in smaller amounts, such as:
- Takeaway food and occasional meals out
- Alcohol
- Adult clothing
- Basic entertainment
The way HEM is calculated is conservative. It uses the median spending for essential items, but only the lowest‑spending 25% of households for discretionary items. In other words, lenders assume you’re careful with non‑essentials.
What doesn’t count in the HEM?
This is where many borrowers are surprised.
HEM does not include:
- Your rent or mortgage repayments
- Private school fees
- Overseas holidays
- Gardening or cleaning services
- Luxury purchases or premium subscriptions
These are considered “non‑basic” expenses and sit outside the HEM calculation.
However—and this is important—just because something isn’t in HEM doesn’t mean the bank ignores it. If you have private school fees, childcare, large insurance premiums or ongoing medical costs, lenders will usually add those on top of the HEM figure when assessing your serviceability.
Why banks use HEM instead of just trusting your numbers
When you apply for a loan, you’ll still be asked to list your living expenses. But if what you declare is lower than the HEM benchmark, the lender will generally default to using HEM instead. This is to prevent people (often unintentionally) understating their real cost of living.
If your actual expenses are higher than HEM, the bank will usually use the higher figure.
The takeaway for everyday families
HEM isn’t there to trip you up—it’s there to make sure your home loan is genuinely affordable. For mum‑and‑dad borrowers, the key is being realistic. Cutting back on takeaway for a month before applying won’t usually move the needle much, but understanding how lenders view your household budget can help you plan better and avoid disappointment.
A good broker can help position your application so your real‑world situation is properly understood—HEM and all.