Lenders ask about your living expenses because Australian responsible lending laws require them to check that you can afford the loan without substantial hardship. Your spending, along with your income and debts, helps them work out how much you can comfortably borrow.
So yes, someone might notice the weekly smashed avo and the four streaming subscriptions. Don’t panic, though. It’s not about judging your lifestyle. It’s about making sure the loan fits it.
What expenses do lenders look at?
Lenders usually ask you to estimate your monthly spending across categories like:
- Groceries and household items
- Utilities (power, water, gas, internet, phone)
- Transport (fuel, rego, insurance, public transport)
- Insurance (health, life, home and contents)
- Childcare and education
- Medical and personal care
- Entertainment, dining out and takeaway
- Subscriptions and memberships (streaming, gym, apps)
- Clothing
They’ll then compare what you say against your bank statements.
What is HEM?
HEM stands for the Household Expenditure Measure. It’s a benchmark of typical spending for households of different sizes and incomes. Many lenders compare your declared expenses to HEM and generally use whichever is higher in their calculations.
So if your declared expenses are lower than the benchmark, the lender may still use the benchmark figure. If your actual spending is higher, they’ll use your actual figure.
Do lenders really read my bank statements?
Often, yes. Lenders typically ask for around three months of transaction statements, and some use technology to categorise your spending automatically. They’re looking for regular commitments, signs of financial stress (like dishonour fees or gambling transactions) and whether your declared expenses look realistic.
Should I cut back on spending before applying?
Being more mindful in the months before applying can help, especially with things like takeaway, BNPL and discretionary spending. More importantly, it gives you a realistic picture of what life will look like with mortgage repayments.
What you shouldn’t do is under-declare your expenses to borrow more. It’s not worth it. Overstretching can lead to real stress later, and providing inaccurate information on a loan application can have serious consequences.
What expenses might I forget?
The sneaky ones! Annual costs like car rego, insurance premiums and school fees. Pet costs. Gifts and Christmas. That gym membership you keep meaning to cancel. Going through 3 to 6 months of statements helps catch these.
Will expenses that end after I buy count?
Sometimes certain expenses will change after you buy, like rent you’ll no longer pay or a car loan that’s about to finish. Lenders treat these differently, so let us know and we’ll present your situation clearly.
How can a broker help with this?
We help you work through your expenses before the lender sees them, so nothing gets missed and your application tells an accurate story. If you’d like to get started, chat with Team Rhythm. Our budget calculators are also handy for a first look.
Frequently asked questions
Usually around three months, though some lenders ask for more.
It can. Regular gambling transactions may raise questions about your spending and your ability to manage repayments.
Generally no. Savings aren’t treated as a living expense, but regular commitments like loan repayments are.
This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. Before acting on it, consider whether it’s appropriate for your circumstances. Your full financial situation will need to be reviewed before acceptance of any offer or product. It does not constitute legal, tax or financial advice. Lending criteria, fees and charges apply. Rhythm Finance Co Pty Ltd (Credit Representative 532711) is authorised under Australian Credit Licence 389328.
