What’s changing?
Major banks are changing their serviceability calculators! This will have an effect on how much you are eligible to borrow for your home loan.
Effective as of February 18, 2012, home loan applications will be subject to revised living expenses by some of the major banks.
The Commonwealth Bank announced that they are moving to the Household Expenditure Measurement (HEM) method in their serviceability calculators for home loans.
Previously the Henderson Poverty Index (HPI) was being used for determining living expenses for calculating the serviceability of a home loan.
Which banks have updated?
The Commonwealth Bank has announced that it will use the new servicing calculator as of February 18, 2012.
St. George Bank has also updated its servicing calculator to base the living expenses on Household Expenditure Measurement (HEM). However, they also take into account the area that the person lives in.
For example, if an applicant lives in rural Tasmania then their living expenses will be much lower than someone living in the Melbourne or Perth CBD.
How does this affect how much you can borrow?
Effectively the change to Household Expenditure Measurement (HEM) from the Henderson Poverty Index (HPI) for calculating living expenses reduces the borrowing capacity of couples and increases the borrowing capacity of single applicants.
Why the switch to Household Expenditure Method (HEM)?
The Household Expenditure Method (HEM) offers a more realistic figure for living expenses, which allows banks and borrowers to more accurately determine a safe loan amount.
Due to the NCCP legislation brought in 2010, banks also ask borrowers for an estimate of their living expenses.
The banks then compare the borrower’s estimate to the bank’s standard living expenses for a family of that size and take the higher of the two.
This ensures that the borrower can comfortably afford the home loan and has a minimal chance of going into arrears or defaulting on the loan.
Will other banks be changing?
Though other banks have not announced any changes to their serviceability calculators, it is expected that the other banks will make similar changes soon.
Living expenses for single adults
The Commonwealth Bank’s calculation of living expenses using Household Expenditure Measurement (HEM) compared to the Henderson Poverty Index (HPI) for single adult households is below:
| Household Segments | HPI | HEM |
|---|---|---|
| No Dependents | $1,250 | $1,105 |
| 1 Dependent | $1,717 | $1,430 |
| 2 Dependents | $2,159 | $1,560 |
| 3 Dependents | $2,601 | $1,889 |
Living expenses for couples
Please refer below to see what the living expenses will be for couples according to the Commonwealth Bank new servicing calculations:
| Household Segments | HPI | HEM |
|---|---|---|
| No Dependent | $1,817 | $2,032 |
| 1 Dependent | $2,284 | $2,583 |
| 2 Dependents | $2,726 | $2,704 |
| 3 Dependents | $3,168 | $3,137 |
Maximise your borrowing
To determine your serviceability, check out out ‘How much can I borrow?’ calculator.
To increase your borrowing capacity, speak to us! Our mortgage brokers are experts in helping you borrow the maximum LVR.
Call us today on 1300 889 743 or enquire online and we can go over your details to help you get the loan that best suits your needs!