One of the biggest misconceptions we hear from borrowers is:
“If I spend too much on coffee, takeaway or Netflix, the bank won’t approve my home loan.”
The reality is far less dramatic.
Yes, lenders review your living expenses when assessing a home loan. But they are not looking for perfection, and they are not expecting you to live on baked beans while saving for a deposit.
Understanding what banks are actually looking for can help remove a lot of unnecessary stress and ensure your application is assessed accurately.
Living expenses are just one part of a lender’s assessment. Banks will also review your bank statements and credit history to build a complete picture of your financial position.
Home Loan Assessment Series
Understanding how lenders assess a home loan application can help you avoid surprises and put yourself in the strongest position possible.
Available guides:
What Banks Look for in Your Bank Statements
What Banks Look for on Your Credit File
What Banks Look for in Your Living Expenses
What Banks Look for in Your Employment & Income
What Banks Look for in Your Existing Debts & Liabilities
What Banks Look for Before Approving a Home Loan (Complete Guide)
Why Banks Review Your Living Expenses
Responsible lending obligations require lenders to confirm that borrowers can comfortably afford their proposed loan repayments.
To do this, banks want to understand:
- Your ongoing cost of living
- Whether your declared expenses are realistic
- How much surplus income remains after your regular commitments
Living expenses help lenders determine whether a loan is affordable not just today, but also if interest rates or circumstances change in the future.
What Banks Pay Close Attention To
Regular Household Expenses
Banks focus on the expenses that are likely to continue after settlement.
This includes:
- Groceries
- Utilities
- Mobile phones
- Internet
- Fuel and transport
- Insurance
- Medical expenses
- Household spending
These form the foundation of your living expenses and are considered in every application.
Childcare Costs
Childcare is one of the largest household expenses for many families and can significantly impact borrowing capacity.
Lenders will generally include ongoing childcare expenses in their servicing calculations, even if they are expected to reduce in the future.
Private School Fees
Private education expenses are closely reviewed because they are considered ongoing commitments.
If private school fees are being paid for children, lenders will generally include these costs when assessing affordability.
Regular Subscriptions
Streaming services, gym memberships and other recurring subscriptions are unlikely to cause a loan decline on their own.
However, they contribute to your overall spending profile and are usually included as part of your living expenses.
Gambling Activity
Similar to bank statement reviews, regular gambling activity can raise concerns for some lenders.
If you’re unsure how lenders assess spending patterns, we’ve also explained what banks look for in your bank statements during a home loan application.
The issue is generally not a once-off transaction. Lenders are more concerned with consistent patterns of gambling that may indicate financial stress or unreliable spending habits.
What Banks Usually Don’t Focus On
The Occasional Coffee or Takeaway
Despite popular belief, lenders are not declining applications because you bought coffee on the way to work.
Banks assess your overall financial position, not isolated purchases.
One-Off Expenses
Large one-off purchases such as holidays, furniture, appliances or car repairs are usually not treated as ongoing living expenses.
If there is a reasonable explanation, lenders generally move on quickly.
Temporary Spending Spikes
Life happens.
Christmas spending, moving house, weddings and family events often create temporary increases in spending.
Provided they are not part of an ongoing pattern, these expenses rarely create issues.
What Is HEM and Why Does It Matter?
Many borrowers are surprised to learn that banks do not simply rely on the expenses listed in the application.
Most lenders use a benchmark called the Household Expenditure Measure (HEM).
HEM is a statistical estimate of living costs based on factors such as:
- Household size
- Income
- Marital status
- Number of dependants
- Postcode
If your declared expenses are lower than the lender’s benchmark, they will use the higher HEM figure instead.
This is one reason why two borrowers with similar incomes can receive different borrowing capacities.
It’s also why borrowers with strong credit histories and similar salaries can receive very different outcomes depending on the lender they choose.
What Banks Look for on Your Credit File When Assessing a Home Loan
Why Two Central Coast Buyers on the Same Income Get Very Different Home Loan Results
Why Two Borrowers on the Same Income Can Get Different Results
Living expenses are one of the biggest reasons we see different outcomes between borrowers.
For example, two couples earning $180,000 per year may have vastly different borrowing capacities if:
- One has childcare costs
- One pays private school fees
- One has higher ongoing commitments
- One has multiple dependants
Income is only one part of the equation.
How We Help You Navigate This
This is where working with a broker can make a significant difference.
At Shoreline Lending, we help clients understand how lenders are likely to assess their living expenses before an application is submitted.
That includes:
- Reviewing expenses before lodging
- Explaining how HEM works
- Identifying expenses likely to impact borrowing capacity
- Comparing lender servicing models
- Structuring applications to suit the most appropriate lender
We also review factors such as your credit history and transaction accounts before recommending a lender.
Continue Reading
Understanding employment and income is only one part of the home loan assessment process.
You may also find these guides helpful:
What Banks Look for in Your Bank Statements
What Banks Look for on Your Credit File
What Banks Look for in Your Employment & Income
What Banks Look for in Your Exisiting Debts & Liabilities
Should You Reduce Your Spending Before Applying?
Not necessarily.
Trying to dramatically change your lifestyle a few weeks before applying for a loan is rarely the answer.
A better approach is understanding how lenders assess your situation and ensuring your application accurately reflects your circumstances.
In many cases, borrowers are already in a stronger position than they realise.
The Bottom Line
Banks are not looking for perfect spending habits.
They are looking for realistic living expenses, responsible financial behaviour and evidence that the proposed loan is affordable.
With the right preparation and the right lender, everyday spending habits are rarely the obstacle borrowers think they are.
We Can Help You Make the Right Move
If you’re considering buying, investing, relocating or refinancing on the Central Coast, we’re here to help you map out your next steps with clarity and confidence.
At Shoreline Lending, we specialise in guiding Central Coast homeowners and families through every stage of their lending journey, with a relaxed approach and expert advice.
Book your free home loan strategy session no pressure, just expert guidance.
Not ready to book? Contact us anytime and we’ll happily help answer your questions.