Expenses & Commitments
The expenses you write down aren't always the ones a lender counts. Here's how they treat your living costs, debts, credit card limits and HECS — and why it matters.
Core Assessment Analysis
How Lenders Assess Expenses and Commitments
The expenses and commitments pillar deducts all verified outgoings from assessed income before calculating how much a borrower can repay on a new loan. The key principle: lenders use the higher of declared living expenses or the applicable HEM benchmark — declaring less than the benchmark does not reduce the floor.
The Household Expenditure Method (HEM)
The HEM is an independently derived benchmark that estimates minimum household living costs based on household size and income level. It scales upward with income — higher-income households carry a higher HEM floor — and increases with dependants.
Where a borrower declares living costs below the applicable HEM, most lenders substitute the HEM figure automatically. Declaring low expenses does not produce a lower expense assumption in the calculator if HEM is higher.
Where declared costs exceed HEM, the higher declared figure is used.
Post-Hayne bank statement scrutiny
Since the 2019 Royal Commission (Hayne Inquiry), lenders are required under ASIC RG 209 to take reasonable steps to verify actual living expenses — not simply accept self-declarations. In practice, this means reviewing 3–6 months of primary transaction account statements. Unexplained or irregular spending patterns, consistent use of BNPL services, gambling transactions, or accounts regularly falling to near zero may each trigger additional scrutiny or a decline.
Credit card limits
Credit cards are assessed based on the total credit limit — not the current balance. Lenders typically apply 3–3.8% of the total credit card limit per month as a standing monthly obligation in the serviceability calculation, regardless of whether the cards carry a balance.
A borrower with $30,000 in combined credit limits may carry an assessed monthly obligation of $900–$1,140 from those cards alone, even if the actual monthly spend is zero.
Existing loan repayments
Existing mortgage repayments (on owner-occupied or investment properties) are typically stressed at approximately 3% above their actual rate in the servicing calculation. This means the assessed monthly commitment on an existing loan will be higher than the actual repayment the borrower is making. For borrowers with multiple investment properties, this can significantly compress borrowing capacity.
HECS/HELP obligations
HECS and HELP debts are treated as a compulsory ATO deduction from gross income, calculated at the relevant repayment rate (typically 1–10% of gross income depending on income level). This is applied before net income is calculated, which means HECS reduces the income available to service a new loan even though it is not a separate monthly commitment visible on a bank statement.
Subpages in this pillar
- How living expenses are assessed
- Expenditure benchmarks (HEM)
- Household size and dependant costs
- Minimum surplus requirements
- Declared vs benchmark expenses
- Expense verification (bank statements)
- Private school and education costs
- Understated expense decline conditions
- Stress-testing commitments
- How existing debts affect servicing
- Credit card limits in serviceability
- HECS/HELP debt treatment
Related canonical question clusters
Why Underwriters Focus Here
Under ASIC RG 209, lenders have a legal obligation to verify that borrowers can genuinely afford the loan they are applying for. Accepting under-declared living costs without verification exposes lenders to regulatory risk. The HEM floor and bank statement review processes are the mechanism by which lenders demonstrate they have taken reasonable steps to establish actual expenses, not just what borrowers choose to declare.
Key Outcome Assessment Factors
Household size, income level (both affect the HEM floor), total credit card limits, number and size of existing loans, HECS balance, school fees, and the content of the last 3–6 months of bank statements. Borrowers with high credit limits and multiple existing loans often face more compression in borrowing capacity than borrowers with lower incomes but clean liability profiles.
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General educational information only. HEM benchmarks and expense assessment policies vary between lenders and are updated periodically. This content does not constitute credit advice. Model Mortgages Pty Ltd | ACL 387460.
Model Mortgages Pty Ltd | Australian Credit Licence 387460
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