What Expenses Do Lenders Assess?
Lenders evaluate HEM baseline benchmarks alongside declared personal living costs, existing debts, and business operational overheads to test serviceability.
Which living expenses matter?
When assessing loan applications for self-employed borrowers or company directors, Australian lenders evaluate personal living costs alongside business operational overheads. On the personal side, credit assessors scrutinise household expenditure including utilities, groceries, insurance, transport, and leisure. They usually cross-reference your declared figures against the Household Expenditure Measure (HEM) benchmark, taking whichever figure is higher to stress-test your household serviceability.
Existing financial commitments heavily impact your overall borrowing capacity. Credit assessors examine fixed obligations like rent, private school fees, personal loans, and tax liabilities managed via ATO payment plans. They also review credit card limits—treating the full limit as an ongoing commitment even if the balance is zero—and check your credit file for recurring liabilities or deferred payment schemes.
For ABN holders and companies, business expenses are separated from personal living costs. Lenders review commercial rent, employee wages, supplier invoices, and existing asset finance leases. When using low doc policies, lenders rely on BAS statements, bank account activity, or accountant declarations to confirm that business cash flow covers operating costs while supporting drawing requirements.
Because individual lenders apply varying benchmarks and expense policies, presenting accurate figures is critical. A Lonix broker can compare lenders across the market, correctly categorise your commercial and personal outgoings, and structure your loan to align with your overall financial profile.
Related questions
- How does the Household Expenditure Measure (HEM) affect my application?
- Lenders use the HEM as a baseline standard for living expenses based on income and household size. If your declared living costs fall below the HEM benchmark, the lender will generally default to the higher HEM figure for serviceability calculations.
- Are credit card limits counted as an expense?
- Yes, lenders calculate serviceability using your total approved credit card limit rather than your actual balance. A high card limit reduces your borrowing capacity because assessors assume the facility could be fully drawn at any time.
- Do ATO payment plans count against my borrowing power?
- Yes, ongoing ATO payment plans for tax liabilities are treated as debt commitments by credit assessors. Outstanding tax debts can reduce serviceability and may require specific lender clearance before a loan is approved.
- How do low doc loans handle living expense assessments?
- Low doc finance allows business owners to verify income via accountant letters or bank statements rather than full tax returns. However, lenders still assess declared personal living expenses or apply standard HEM benchmarks to verify affordability.