How do banks assess my living expenses using the HEM benchmark?

When you apply for a home loan, a lender doesn’t just take your word for what you spend each month. Under Australia’s responsible lending rules, it has to make reasonable inquiries about your living expenses and take reasonable steps to verify them. The Household Expenditure Measure — HEM — is one tool many lenders use somewhere in that process.

But ASIC is explicit on one point: a benchmark figure like HEM cannot verify what an individual borrower actually spends, and it isn’t meant to replace the inquiry itself. It’s a plausibility check, not a substitute for it.

That distinction matters more than the number itself, and it’s the one this article focuses on.

What is the HEM benchmark?

The HEM is a benchmark measure of household living costs, published quarterly by the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne. It’s built from two components: the median level of “absolute basic” spending (necessities most households can’t avoid) plus the 25th-percentile level of “discretionary basic” spending (the more optional categories, set at what a fairly frugal household spends). Because it’s built this way, ASIC’s own guidance notes that most households would be expected to spend more than the benchmark figure, not less.

The current HEM benchmark dollar values by household composition are published by the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne — check the Melbourne Institute website for the latest quarterly figures rather than relying on a figure cited here, as the benchmark is updated quarterly.

Why a benchmark alone can’t verify your expenses

This is the spine of how the rules actually work, so it’s worth quoting directly. ASIC’s Regulatory Guide 209 states that expense benchmarks “do not provide any information about the individual consumer, and do not confirm or verify that the information that has been obtained about the consumer is true.” Drawing on a Federal Court finding against a lender that had relied on a benchmark instead of asking borrowers about their actual costs, the guide describes a benchmark figure as “ultimately a notional figure in substitution for making reasonable inquiries” — which is exactly what it must not be used as.

RG 209 does set out where a benchmark like HEM is legitimately useful: as a plausibility check against expenses a lender can’t otherwise verify, as a way of estimating expenses after the loan settles, or to test whether a borrower’s proposed spending reductions are realistic. It also makes clear a benchmark doesn’t have to be treated as a floor — if a lower, verified expense figure is genuinely accurate for you, that figure can stand.

How lenders actually use HEM alongside your declared expenses

The prudential regulator adds a second layer on top of ASIC’s conduct rules. APRA’s guidance for authorised deposit-taking institutions (APG 223) notes that lenders typically use HEM or a similar index (the Henderson Poverty Index) as part of assessing expenses — but it also says relying on these indices alone “generally would … not meet APRA’s requirements for sound risk management.” In other words, the expectation from both regulators points the same way: a benchmark sits alongside your declared expenses as a check, not in place of asking about them.

Exactly which index a lender uses, and how it weighs a benchmark against your stated expenses, is a matter of that lender’s own credit policy, and policies vary between institutions — this article describes the regulatory framework behind the practice, not any bank’s specific process.

The buffer that sits alongside your expenses

Living expenses are only one input into what a lender decides you can afford. Alongside them, a prudential standard sets a margin lenders must add to the interest rate itself:

As at July 2026, under Prudential Standard APS 220 Credit Risk Management, an authorised deposit-taking institution must apply a buffer of at least 3.0 percentage points over a loan’s interest rate — applied to both new lending and a borrower’s existing debts — unless APRA determines otherwise.

APS 220 is a binding prudential standard. APG 223, the practice guide that relays this buffer alongside the HEM discussion above, does not itself create enforceable requirements — the enforceable obligation sits in APS 220. For the fuller picture of how income, expenses, existing debts and this buffer combine into a borrowing capacity figure, see our guide to how banks calculate borrowing capacity.

What this means when you’re preparing to apply

None of this is a reason to under-declare your expenses in the hope of a bigger loan — a lender’s verification steps exist precisely to test what you’ve written down, and understating costs can affect how sustainable the loan actually is for you. What it does mean is that a benchmark figure isn’t a target to beat or a wall you can’t get past. It’s one plausibility check among several inputs a lender weighs, and how much weight it carries can differ from one lender to the next.

If you’re comparing paths into a first home — including how a deposit-building product like NestEgg or a Brix holding fits alongside your savings — see our guide to first home deposits in Australia; a HEM check happens later, once you’re applying for the loan itself.

Where this leaves you

There’s no single number this article can hand you for “what counts as an acceptable living expense” — it depends on your actual circumstances, what you can substantiate, and the policy of the lender you apply with. A licensed mortgage broker can walk through how your declared expenses are likely to be tested and help you prepare the right supporting information before you apply.