Loan Serviceability: Income and Expense Rules

Loan serviceability is a lender’s test of whether a borrower’s verified income can cover the new loan, existing debts and living expenses at a buffered assessment rate. Each lender runs that test with its own income shading, expense benchmark, debt treatment and assessment floor.

That’s why the same client facts can produce different borrowing results at two lenders. The Australian Prudential Regulation Authority (APRA) sets a minimum buffer of 3 percentage points, and each lender sets most of the other inputs itself.

Build the Input Record

Start the serviceability file from the client’s documents before you open any calculator. The record lists every income source, debt, credit limit, dependant and living expense once, with the document behind each figure.

Income, Debts and Expenses Without Double Counting

Reconcile income, declared debts and home loan living expenses so that each dollar appears in one place only. A double-counted expense lowers the result, and a double-counted income raises it.

These are the common overlaps to check.

• A car loan repayment belongs in liabilities. Keep fuel, registration and insurance in living expenses, but don’t add the loan repayment to transport costs as well.
• A wage paid by the client’s own company counts once, either as salary or as an add-back to company profit.
• Salary packaging changes the income input, so record the packaged amount and the lender’s treatment. The salary sacrifice home loan guide covers how lenders treat packaged income.
• A Higher Education Loan Program (HELP) debt, still called HECS by most borrowers, is one liability input. The HECS home loan assessment guide explains current lender treatment.
• Investment property costs, such as strata, rates and insurance on the rental, go against the rent. They don’t belong in household living expenses.
• Rent or board the client will keep paying after settlement is a commitment, not a general living expense.

If a figure appears in two documents, record the source you used and note the other. A bank statement that shows a $650 car loan debit confirms the liability, so the same debit shouldn’t reappear in a spending category.

What Living Expenses Include

Living expenses are the ongoing costs of running the household, such as food, utilities, transport, insurance, childcare and school costs. Debt repayments are listed separately as liabilities, and rent is usually a separate commitment.

Monthly living expenses are the same costs converted to a monthly figure, which is the unit most servicing calculators use. Lenders group them differently, so check the lender’s categories before you enter them.

Macquarie’s 10 September 2026 residential credit guidelines split living expenses into two groups.

• General living expenses cover medical and health costs (not health insurance), groceries, clothing and personal care, recreation and entertainment with pet care, and childcare. They also cover phone, internet and media, transport, tertiary education (not HECS), public school costs, general insurance such as home and car cover, and primary residence costs.
• Additional living expenses cover personal insurances such as health and life cover, private education, owner-occupied strata or body corporate fees, secondary residence costs and other expenses not listed elsewhere.

That split matters because Macquarie compares only general living expenses with the Household Expenditure Measure (HEM), a spending benchmark explained below. Additional living expenses are added on top. Don’t carry Macquarie’s grouping into another lender’s calculator, because each lender sets its own categories.

To calculate living expenses, start from the client’s own records rather than an average figure. Use these steps.

1. Collect recent transaction statements for every account the household spends from, including credit cards.
2. Sort each regular payment into the lender’s expense categories.
3. Convert each amount to monthly. Multiply weekly amounts by 52 and divide by 12, multiply fortnightly amounts by 26 and divide by 12, and divide quarterly amounts by 3 and annual amounts by 12.
4. Compare the converted total with what the client declared, and ask about any category that differs.
5. Add known future costs the statements don’t show yet, such as childcare starting next term.

National and state averages describe other households, so they can’t stand in for this client’s spending. The average mortgage guide covers what those market figures can and can’t tell you about an individual assessment.

Living Expenses Worksheet

Use this living expenses list as an editable worksheet structure. Each row records one category, and the columns let a reviewer trace the monthly figure back to a document.

Category	Stated amount	Verified period	Monthly conversion	Source	Shared-household allocation	Unresolved discrepancy
Groceries	$250 a week	1 June to 31 August	$1,083	Joint everyday account	100% to applicants	None
Childcare	$420 a fortnight	1 June to 31 August	$910	Joint everyday account and enrolment statement	100% to applicants	Fee rises from 1 January, so confirm the new amount
Transport	$150 a week	1 June to 31 August	$650	Credit card and fuel card	100% to applicants	Car loan debit excluded, already a liability
Utilities	$1,200 a quarter	Two quarterly bills	$400	Joint everyday account	100% to applicants	None
Phone and internet	$180 a month	1 June to 31 August	$180	Credit card	100% to applicants	None
Home, contents and car insurance	$2,604 a year	Renewal notices	$217	Credit card	100% to applicants	None
Medical and health	$220 a month	1 June to 31 August	$220	Joint everyday account	100% to applicants	None
Recreation	$400 a month declared	1 June to 31 August	$640	Both accounts	100% to applicants	Statements show $640 a month, so the client updates the declaration
Private health insurance	$1,140 a quarter	Two quarterly debits	$380	Joint everyday account	100% to applicants	None

The figures belong to the fictional Priya and Tom household in the worked example below. The first eight rows total $4,300 a month, and private health insurance is an additional living expense at Macquarie. Add a row for every category the lender asks for, even where the amount is $0, so the reviewer can see the category was considered.

A reviewer reconciles the total in four steps.

1. Recalculate each monthly conversion from the stated amount and frequency.
2. Check that every row has a source document and a verified period.
3. Confirm that no row repeats a liability, rent payment or investment property cost recorded elsewhere.
4. Resolve or record each discrepancy, then compare the worksheet total with the declared total in the application.

Worked Example: The Priya and Tom Household

This fictional household reconciliation runs from documents to usable figures under Macquarie’s 10 September 2026 guidelines. Priya and Tom are a couple with two children, aged 4 and 7, and both are applicants.

They’re buying an investment unit for $600,000 with a new loan of $480,000. They already own their home, which has a $520,000 owner-occupied loan with 26 years remaining.

Document	Figure	Macquarie treatment	Usable figure
Priya’s payslips and employment contract	$110,000 base salary	100% of base income	$110,000 a year
Tom’s payslips	$70,000 base salary	100% of base income	$70,000 a year
Tom’s employer letter and last bonus payslip	$10,000 bonus, a condition of employment	80% of bonus income	$8,000 a year
Home loan statement	$520,000 balance, 26 years remaining	Repayment at the assessment rate over the remaining term	Calculated at the assessment rate
Car loan statement	$20,000 balance, 36 months remaining, $650 a month declared	Higher of the declared repayment or the repayment at the assessment rate	Calculated, then compared with $650
Credit card statement	$15,000 limit, $2,000 balance	45.6% a year of the limit	$570 a month
Transaction statements	General living expenses of $4,300 a month	Compared with the income-tiered HEM figure	Higher of the two
Transaction statements	Private health insurance of $380 a month	Additional living expense	$380 a month

The credit card line uses the $15,000 limit, not the $2,000 balance. The household has two dependants, which the calculator uses to select the HEM figure.

Suppose the calculator’s HEM figure for this household is $4,600 a month, an assumed number for this example. Macquarie then uses $4,600 for general living expenses, plus the $380 of additional living expenses, for a total of $4,980 a month.

Investment Property Scenario

For an investment property, reconcile the rent and every existing debt in the portfolio before you compare lenders. Priya and Tom’s agent appraisal estimates rent of $520 a week, which is $27,040 a year.

Macquarie’s guidelines take the lesser of the rent in the Macquarie-ordered valuation and the agent’s estimate, then count 75% of it in line with ownership. If the valuation shows the same rent and both applicants own the unit, the usable rent is $20,280 a year, or $1,690 a month. If the unit’s expenses exceed 20% of gross rent, Macquarie uses the actual expenses instead.

Then record the rest of the investment file.

• Requested repayment structure: Priya and Tom want a 30-year loan of $480,000 with five years interest only. Macquarie assesses it as principal and interest (P&I) over the remaining 25 years, not the interest-only repayment.
• Portfolio debts: list every loan secured against any property (including the home loan) and show who owns each property.
• Tax records: collect the tax returns that verify income, with the rental schedule for any property already held. Macquarie inputs rental income and negative gearing benefit in proportion to ownership.
• Security and LVR: run the security check separately. Servicing shows whether the repayments fit, while loan-to-value ratio (LVR) limits decide how much the property can secure. The maximum LVR guide covers lender and property limits.

Compare lenders on identical purpose and portfolio facts before you record a recommendation. If one lender’s run treats the unit as owner-occupied or leaves out the home loan, its result can’t be compared with the others.

Apply Lender Adjustments

Lender adjustments turn the input record into the figures the calculator uses. Income shading reduces some income, a benchmark sets a minimum expense figure and buffers raise every repayment.

Income Shading

Income shading is the lender’s discount on income it treats as less certain. APRA’s APG 223 residential mortgage lending guide describes a discount of at least 20% on most non-salary income as prudent, with larger discounts in some cases.

Lenders set their own percentages. Under Macquarie’s 10 September 2026 guidelines, these shading rates apply.

Income type	Share Macquarie counts
Base salary and casual income	100%
Overtime in listed occupations, such as police and health services	100%
Other regular overtime	80%
Commission or bonus	80%
Residential rent	75%
Short-stay and room rental	65%

The same bonus, rent or overtime can count differently at another lender. Check each lender’s own table before you compare results.

HEM and Declared Expenses

The Household Expenditure Measure (HEM) is a benchmark of modest household spending that lenders compare with a borrower’s declared living expenses. The Melbourne Institute publishes it and updates it each quarter.

HEM excludes rent and mortgage repayments, so housing costs stay separate. ASIC’s Regulatory Guide 209 says expense benchmarks reflect a household with a defined range of characteristics, such as adults and dependants, income range and location.

These borrower inputs select the applicable HEM benchmark.

• Whether the applicants are a couple or single
• The number of dependants
• Household income
• Where the household lives, including state and capital city or regional area

APG 223 says a lender should use the greater of the declared living expenses or an appropriately scaled HEM figure. It also says that relying solely on the index wouldn’t meet APRA’s requirements.

When declared expenses sit above HEM, the declared figure is used. When they sit below, the benchmark figure is used instead.

Macquarie’s living expenses help page, as at October 2026, says its calculator shows a red validation message when general living expenses fall below HEM. The applicants must then provide three months of bank statements.

HEM figures change each quarter and vary by household, so an average monthly living expenses figure or an undated household expenditure measure table isn’t the client’s verified expenditure. RG 209 says a benchmark gives no information about the individual consumer. Record the lender’s calculator and its version instead, because that version holds the HEM figure the lender actually used.

APRA Serviceability Buffer and Floor Rates

The APRA serviceability buffer is 3 percentage points above the loan’s interest rate. APRA confirmed it would stay at that level in its 28 May 2026 macroprudential update.

The buffer is a prudential minimum that applies to every APRA-regulated lender. The serviceability floor rate is a separate minimum assessment rate that each lender sets for itself. APG 223 expects lenders to use a floor so the buffer stays adequate when rates are low.

Macquarie’s 10 September 2026 guidelines set a 3.00% buffer and a 5.30% floor. Macquarie assesses at the higher of the carded rate plus the buffer or the floor, and applies the buffer to the higher of the carded or revert rate.

At an assumed 6.00% rate, Macquarie’s assessment rate is 9.00%, so the floor has no effect. The floor only decides the result when the carded rate is below 2.30%.

APG 223 also expects lenders to apply buffers and floors to existing debts as well as the new loan. Macquarie does this for other secured and unsecured loans by using the higher of the declared repayment or the repayment at the assessment rate.

Mortgage Stress Test and Household Hardship

A mortgage stress test is a check of repayment capacity under stated adverse assumptions, such as higher interest rates. The serviceability buffer is a lender’s stress test, because it asks whether the client could still meet repayments at the higher rate.

Household hardship is different. It describes a borrower who is already struggling to meet repayments, for example after losing income. A client can pass the buffered test at application and still face hardship later if their circumstances change.

Using Priya and Tom’s existing home loan, the stress test looks like this. At an assumed 6.00% rate, the P&I repayment on $520,000 over 26 years is about $3,295 a month. At Macquarie’s 9.00% assessment rate, the calculator uses about $4,320 a month.

Existing Debts and Credit Limits

Existing loans reduce borrowing capacity because the calculator counts their repayments as commitments. A car loan, personal loan or other home loan doesn’t stop a client getting a mortgage, but each one leaves less income for the new loan.

APG 223 says a lender may assess credit cards and other revolving debt at 3% a month of the total limit. Macquarie’s 10 September 2026 guidelines use 45.6% a year of the card limit, which is 3.8% a month.

Debt	Macquarie treatment	Priya and Tom
Credit card	45.6% a year of the limit	$15,000 limit counts as $570 a month
Car or personal loan	Higher of the declared repayment or the repayment at the assessment rate over the remaining term	$650 declared, $664 at a 12.00% assessment rate, so $664 counts
Buy now pay later	Lower of the declared annualised repayment or the outstanding balance	None
Charge card	0% if three months of statements show the balance paid in full each period	None

The car loan’s assessment rate assumes a 9.00% loan rate plus Macquarie’s 3.00% buffer. The calculation uses the 36 months remaining on the loan.

Lenders also cap debt relative to income. Macquarie applies a maximum debt-to-income (DTI) ratio of 8 times and an 80% LVR limit above 6 times. The debt-to-income ratio guide explains how DTI limits work.

Common Debt Reducer and Shared Liabilities

A common debt reducer lets the lender count only part of a debt shared with someone who isn’t applying, once that person’s share is evidenced. Macquarie calls its version a spousal debt reducer and allows it for a joint commitment with a non-applicant spouse.

Macquarie’s 10 September 2026 guidelines give two options.

• Include 100% of the joint commitment, and count 100% of any related rental income and negative gearing benefit.
• Apportion the commitment, but only after a combined household servicing calculation shows the non-applicant spouse can service the remainder.

If the joint debt is with another lender, or the spouse’s position has changed, apportioning needs written confirmation of the spouse’s employment and finances plus income evidence. For a joint debt already at Macquarie, Macquarie reviews the original assessment instead. It needs the spouse’s written confirmation only when that approval is more than 90 days old.

Macquarie also needs the spouse’s written acknowledgement of the new loan, unless the joint loan is being applied for at Macquarie at the same time. A joint debt with anyone other than a spouse counts at 100%.

RG 209 also allows shared outgoings to be apportioned when the lender confirms the arrangement. In its examples, the confirmation comes from the other person or from transaction statements.

Record the unadjusted liability, the reduced figure and the written basis for the reduction in the file. That way the same debt is neither omitted nor reduced twice, such as by halving it in liabilities and halving the matching household expenses again.

Explain Why Results Differ

Results differ because each lender applies its own policy assumptions to the same inputs before the calculator does the arithmetic. Separate those two layers, and you can trace each difference to a stated rule.

Policy assumptions are the lender’s choices. They include the shading percentages, HEM version, buffer, floor, credit card rate and the term used to assess interest-only loans.

The calculator’s arithmetic output is what follows from those choices. It covers the repayment formula, tax on assessed income and the final surplus or shortfall.

One Fixed Scenario, One Change at a Time

Keep Priya and Tom’s facts fixed and change one input at a time. The table compares Macquarie’s rules with Lender B, a hypothetical lender whose rules sit at the APG 223 figures.

Input	Macquarie, 10 September 2026 guidelines	Lender B, hypothetical	Monthly effect
$15,000 credit card limit	3.8% a month, $570	3% a month, $450	$120 more commitments at Macquarie
$27,040 a year of rent	75% counted, $1,690 a month	80% counted, $1,803 a month	$113 less rental income before tax at Macquarie
$480,000 investment loan	9.40% assessment rate, P&I over 25 years, $4,160	Same rule	No difference

The investment loan uses an assumed 6.40% rate plus Macquarie’s 3.00% buffer. The actual interest-only repayment at 6.40% would be $2,560 a month, but the calculator uses the $4,160 P&I figure.

Run the comparison in this order.

1. Enter the full input record into each lender’s calculator without changes.
2. Note each lender’s result, calculator version and date.
3. Change one input at a lender, such as the credit card limit, and record the new result.
4. Set that input back before you change the next one.
5. List each difference beside the rule that caused it.

If the two calculators still differ after every stated rule is accounted for, look for an input entered differently, such as a frequency or ownership share. Resolve that before you choose a lender.

Bulma’s Scenario Planner calculates borrowing power and serviceability at each of 52+ lenders using that lender’s own servicing inputs, such as HEM, buffers and income shading. When you change one fact, it updates the lender list and borrowing power, and the lender’s own assessment still sets the final figure.

How Much Income a Loan Needs

No fixed income buys a house, because the income needed depends on these same inputs. A household with low income, dependants or existing debts reaches its servicing limit sooner, since the HEM figure and commitments take a larger share of income.

For low income mortgage loans, compare lenders on the shading and expense rules that affect that client most, such as how they treat part-time, casual or government income. A large deposit lowers the loan amount and the LVR, but a client with no job still needs verifiable income to meet repayments at the assessment rate.

Record the Assessment

Record enough detail for another broker to reproduce the serviceability result. Include each of these in the file.

• The lender, calculator name and calculator version, with the date you ran it
• The policy document and its date for each rule you relied on, such as “Macquarie’s 10 September 2026 credit guidelines”
• Every assumption, such as the interest rate entered, the HEM figure the calculator returned and the rent figure used
• Any override, such as an excluded expense or apportioned debt, with its written basis
• The living expenses worksheet and each unresolved discrepancy
• The result at each lender compared, with the single-input changes that explain the differences

A record with those items lets another broker rerun the same calculator and reach the same figure. Where a fact is still open, such as a childcare fee increase, record it as unresolved and note how it would change the result.

Closing a Credit Card Before Applying

Before a client closes a credit card for a mortgage application, establish how the lender treats the facility limit, the outstanding balance and the closure evidence. Then recalculate the scenario with the card removed.

At Macquarie, the card counts at 45.6% a year of the limit, whatever the balance. Macquarie compares comprehensive credit reporting (CCR) data with the application, and its guidelines require satisfactory evidence when an account is being closed or its limit reduced.

For Priya and Tom, closing the $15,000 card removes $570 a month of commitments at Macquarie, once the $2,000 balance is paid and the closure is evidenced. That doesn’t guarantee a higher borrowing result, because the DTI cap, security and credit history still apply. Rerun the calculator with the card removed and record both results before the client acts.

Assess a Non-Borrowing Spouse

A non-borrowing spouse stays in the assessment through household expenses, shared debts and any property interest, even when the lender doesn’t use their income. Establish the spouse’s position before you decide the application structure.

Record these facts about the spouse.

• Household role: whether they live in the household and contribute to its costs
• Property interest: whether they own or will own a share of the security property
• Shared expenses: which household costs they pay and how the split is evidenced
• Joint and guaranteed debts: every loan they hold with the applicant or have guaranteed for them
• Financial dependence: whether the applicant supports them, which affects the household type and HEM figure
• Required liabilities: any debt the lender must include in full, such as a joint debt that isn’t apportioned

RG 209 shows why the split matters. In one of its examples, a lender halved household expenses for a borrower whose wife’s income went mostly on her own loans, and the loan defaulted.

Lender Requirements for the Spouse

Lenders treat a non-borrowing spouse through their own structure and document rules. These are two lenders’ published requirements.

Requirement	Macquarie, 10 September 2026 guidelines	Westpac minimum documents checklist, as at October 2026
Property interest	Every mortgagor must be a borrower or a guarantor. A spouse who co-owns the security without borrowing must be a guarantor, and the borrower table then lists both spouses’ income	Rates notices for all properties owned that Westpac doesn’t already hold
Credit enquiries	A credit report is obtained for all borrowers and guarantors	CCR data is used to verify liabilities
Independent advice	A guarantor spouse needs independent legal and financial advice	The checklist sets no separate advice item
Consent and declarations	Apportioning a joint debt needs the spouse’s written acknowledgement of the new loan, unless the joint loan is applied for at Macquarie at the same time, and confirmation of their position where the guidelines require it	A signed privacy acknowledgement, consent and confirmation form is mandatory for every application except an existing loan increase
Identity	The guidelines set no separate identity rule for a non-borrowing spouse	Identity verification is required, including a verification of identity certificate where a new mortgage is required
Board or rent	Notional rent of $650 a month per household applies to investment buyers who live rent-free with family or friends	Where the applicant pays $0 board and lives with a spouse who isn’t a co-borrower, a rates notice or utility bill naming the spouse as owner

Macquarie’s guidelines also treat a co-borrower who isn’t a spouse and gains no benefit as a borrower of convenience, which is unacceptable. That rule doesn’t apply to spouses, but it shows why the household relationship needs recording.

When Removing the Spouse Doesn’t Remove the Issue

Removing a spouse from the application removes their income, but it doesn’t remove their effect on the household. These items stay in the assessment.

• Household living expenses, which the lender assesses for the whole household, including a dependent spouse
• Joint debts, which count at 100% unless the lender allows a documented reduction
• Ownership, because a co-owning spouse must still sign as a guarantor at Macquarie
• Guarantees the applicant has given for the spouse’s debts, which Macquarie investigates when they appear in credit enquiries

If the spouse’s income is needed to service the loan, check whether the lender’s structure rules let it count, such as Macquarie’s guarantor structure. If it isn’t needed, record why the applicant can service alone and how the household costs are shared. Then note the lender rules you applied and run each lender’s calculator on that basis.