17 Dec 2021

Household Expenditure Measure and Lenders Rations: An Overview

Household Expenditure

Lenders apply several ratios when they assess a mortgage applicant’s application. That’s why the process takes at least four weeks to complete. It’s also why they request at least three months of bank statements and payslips. Their goal is to find a trend in your ability to repay your current debts and the income you receive.

The household expenditure measure ratio is a formula that predicts a household’s expenses. It takes into account their life stage. Although life stage averages continue to change, they remain valuable tools. 

The Melbourne Institute rendered the HEM formula. The main components are age, relationship status, and the number of kids. If an applicant has no children but is recently married, it’s safe to assume that children are on the horizon for them.

If a young applicant applies, the HEM makes assumptions about their relationship status. The average age when Australians marry has increased. In 2021, it stands at 32 years old. 

HEM helps lenders estimate an applicant’s future expenses. Typical mortgages still last 30 years. A lot happens in that length of time. One-third of Australians experience financial hardship at least once in 30 years. If the homeowner enters a mortgage that they can handle, they can weather financial hardships more easily. 

Household Expenditure Measure Conclusion

To learn more about household expenditure measures and how it affects your ability to borrow for a home loan, contact Mortgage House. Our loan specialists have tools to help you estimate the best loan amount for your financial situation.

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