Research finds one in five borrowers understated their living expenses, with some loans rejected as a result
A significant proportion of Australian borrowers are undermining their own mortgage applications by misreporting their day‑to‑day living costs, with some pushed below lenders’ serviceability thresholds as a result.
A survey by Money.com.au found that around one in five mortgage holders understated their living expenses when they applied for their home loan. Within that group, 12% said their underestimation was picked up by a broker or lender and the loan still proceeded, while 8% said their application was declined because of the discrepancy.
In some cases, respondents reported understating their monthly outgoings by more than $1,000 – a gap large enough, in many instances, to affect serviceability calculations and borrowing capacity.
Debbie Hays (pictured right), mortgage expert at Money.com.au, said many borrowers lack a clear grasp of their own spending patterns. “Most people don’t know how much they spend each month,” she pointed out.
“More often than not, mortgage applicants will have an estimate of their living expenses, and when you go through their bank statements, you find glaring inconsistencies. You want to find those errors before you submit your loan application.”
Hays also underlined the intensity of lender oversight in the current environment. “Lenders will scrutinise every line of your bank statements, so if the figures don’t match what you’ve declared, whether the mistake is accidental or intentional, it can derail your application or even lead to a rejection,” she added.
“This applies just as much to refinancing as it does to new loan applications, because they re-run the same serviceability checks every time.”
Despite the risks for some borrowers, most respondents to the survey appeared to have a realistic handle on their costs: 69% of mortgage holders said they had estimated their living expenses accurately, while 11% said they had overstated them.
The research also found that Gen Z respondents were the most likely to underestimate their living expenses, with 62% admitting their figures were off. That compared with 33% of Millennials, 19% of Gen X and just 8% of Baby Boomers.
The consequences of those errors also fell more heavily on younger cohorts. Among Gen Z borrowers who understated their expenses, nearly one‑third (32%) reported having a home loan application declined, versus 13% of Millennials in a similar position.
According to the research, lenders continue to rely on the Household Expenditure Measure (HEM) as a baseline to assess essential living costs, taking into account income, relationship status and dependants. They compare this benchmark with the applicant’s declared expenses, and with spending patterns drawn from at least three months of bank statements.
Where actual spending exceeds what has been disclosed on the application, lenders typically adopt the higher, real‑world figure. If this sits above the HEM benchmark, it can reduce borrowing capacity and, in some cases, push an application below the required serviceability buffer.
Hays said there are circumstances in which relatively low declared living costs may still be accepted. This can include situations where borrowers are self‑employed and legitimately run some personal expenditure through their business, where there is a strong record of savings or high income consistent with the applicant’s lifestyle, or where there is substantial equity in the property, lowering the lender’s risk profile.
For mortgage brokers, the research underlines the importance of working through clients’ bank statements and budgets before submission, ensuring declared expenses reflect actual spending and that any apparent anomalies can be explained and documented.
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
