Mortgage brokers have fresh reason to double down on expense assessments as new research reveals a hidden spending trap is costing young Australians their shot at a home loan.
Money.com.au data shows one in five homeowners significantly underestimated their living expenses when applying for a mortgage, with some understating their monthly spending by more than $1,000 – enough to push them below serviceability thresholds and trigger a decline.
Within this group, 12% said they unintentionally underestimated their expenses but a broker or lender flagged it and the loan still proceeded, while 8% had their application rejected outright as a result of the error.
The findings come as households ramp up their day‑to‑day outlays. The latest ABS data shows household spending jumped 1.3% in October and is now 5.6% higher than a year ago, driven by surging discretionary purchases across clothing, furnishings, electronics, and hospitality.
Money.com.au mortgage expert Debbie Hays (pictured) said many borrowers have little real visibility over their day‑to‑day spending – a risk for both clients and brokers.
“Most people don’t know how much they spend each month,” Hays said.
“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.
“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.
“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, most borrowers are getting it right: 69% of mortgage holders accurately estimated their expenses, and 11% even overstated their costs.
The research found a sharp generational divide, with younger clients far more likely to misjudge their budgets – and suffer harsher consequences.
Among those who underestimated their expenses, 32% of Gen Z applicants had their home loan rejected, compared with 13% of Millennials.
For brokers, that makes upfront education and forensic expense reviews especially critical when dealing with first‑time buyers and younger borrowers.
The findings also underline the importance of understanding how lenders test living expenses, news.com.au reported.
Lenders typically use the household expenditure measure (HEM) as a benchmark, adjusted for income, relationship status, and dependents. They then compare this benchmark and the borrower’s declared expenses with at least three months of bank statements.
If actual spending is higher than what’s declared, lenders will use the higher figure. In many cases that will still sit above HEM and materially reduce borrowing capacity – and in some instances push the deal below serviceability and lead to a decline.
However, Hays said there are situations where lower declared living costs may be acceptable, such as when borrowers legitimately run some personal expenses through a business, have high savings or strong surplus income that clearly supports their lifestyle, or hold significant equity that reduces lender risk.
For brokers, the message is clear: meticulous budgeting, statement‑level reviews, and honest disclosure of living expenses are now non‑negotiable steps in securing – and keeping – a home loan approval.
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