When applying for a home loan, one of the most common questions we hear in the context of living expenses is:
“Should I cut back my spending before I apply?”
It’s a fair question. Your living expenses play a key role in how much you can borrow, and lenders will always assess whether your day-to-day spending habits align with the income and commitments you’ve declared. But the answer isn’t as simple as just tightening your belt for a few months.
In this article, we’ll break down:
- How banks and lenders assess living expenses
- The difference between HEMS and declared living expenses
- Why lenders sometimes request bank statements
- Whether limiting your spending before applying is really the right move
How Lenders Assess Living Expenses
When a lender looks at your home loan application, they’re trying to answer one big question:
Can this borrower comfortably afford their repayments?
To do that, they consider three key elements:
- Your declared living expenses – what you tell the bank you typically spend each month.
- The Household Expenditure Measure (HEMS) – an industry benchmark that provides a minimum expense figure based on household size, income, and lifestyle.
- Your actual spending patterns – what shows up on your bank and credit card statements.
Declared Living Expenses vs HEMS
You’ll be asked to declare your living expenses across different categories like groceries, transport, insurance, utilities, childcare, and discretionary spending.
But even if you declare low expenses, lenders will compare that figure to the HEMS benchmark. If what you’ve declared is below the benchmark, the lender will usually apply the HEMS figure instead.
For example:
- You declare $2,500 per month in living expenses.
- HEMS for your income and household type is $3,200.
- The bank will use $3,200 in their calculations, not $2,500.
This ensures lenders are not approving loans based on unrealistically low budgets.
In some cases, lenders will request three months of bank and credit card statements to verify your spending. This usually happens if:
- Your declared expenses are significantly lower than HEMS.
- You’re applying for a higher loan amount relative to your income.
- You’ve had previous debts or credit issues.
- You’re a self-employed borrower with variable income.
What they’re really looking for is consistency:
- Regular rent or mortgage payments (if applicable).
- Evidence of recurring expenses like subscriptions or childcare.
- Whether your discretionary spending (eating out, online shopping, travel) seems sustainable alongside a mortgage.
Should You Cut Back Spending Before Applying?
Here’s the key point:
Short-term spending cuts don’t override long-term patterns.
If you slash your grocery bill and stop dining out for two months, it may look good on paper. But if your historical spending shows a much higher level of expenses, lenders may question whether your declared expenses are realistic.
Instead of extreme cutbacks, focus on:
- Tidying up your accounts – clear out unused subscriptions, late payments, or unnecessary credit.
- Demonstrating consistency – show you can live within your means over several months.
- Managing debt wisely – reduce high-interest debts where possible before applying.
Cutting back for the sake of appearances won’t help if it doesn’t reflect your real lifestyle. Instead, focus on things that will actual yield you results in terms of financial hygiene. Things that legitimately save you money anyway.
What if you’ve had some one-off expenses in the last 3 months?
It’s not uncommon to have big-ticket expenses in the months leading up to a home loan application — a wedding, holiday, new car, the kids orthodontics or medical bills. The good news is, lenders generally focus on your recurring, ongoing living expenses rather than one-off transactions. A single large purchase won’t usually affect your borrowing capacity if it’s clearly not part of your regular budget. However, if those expenses were funded by new debt (such as a personal loan or credit card), the repayments on that debt will be included in your overall financial assessment. This is why it’s important to be upfront with your mortgage broker — we can explain the context of these one-off expenses in your application and present your case clearly to the lender.
How We Help at Base Home Loans
At Base Home Loans, we guide clients through this process every day. We’ll help you:
- Accurately declare your living expenses.
- Understand how HEMS applies to your situation.
- Prepare your accounts so you’re putting your best foot forward.
- Position your application with the lender that best matches your borrowing profile.
That way, you won’t need to “game the system” — instead, you’ll have a strong application backed by realistic numbers.
When it comes to home loan applications, living expenses matter — but it’s not about temporarily restricting your lifestyle. Lenders want to see a true picture of how you manage money, and they’ll always cross-check your declared figures against HEMS and, sometimes, your actual statements.
The best approach is to be honest, consistent, and well-prepared. With the right advice, you can navigate the process smoothly and maximise your borrowing power without unnecessary stress.
Thinking about applying for a home loan? Get in touch with the team at Base Home Loans. We’ll help you prepare your finances and find the right lender for your needs.
Disclaimer: The information provided on this blog is for general informational purposes only and does not constitute financial or professional advice. While we strive to provide accurate and up-to-date information, mortgage laws and regulations can change, and individual circumstances may vary. We recommend consulting with a qualified financial advisor or mortgage broker to assess your specific situation and needs. Base Home Loans is not responsible for any actions taken based on the content of this blog. Always conduct your own research and consider seeking professional advice before making financial decisions.
