Living Expense Category Proposal – August 2019

Living Expense Category Proposal
August 2019

Background to Proposed Changes

Multiple rounds of industry consultation have now been completed since November 2018 (see timeline). Broad representation from the LIXI community has contributed many hours of time to provide detailed requirements and to propose and evaluate a set of categories. The culmination of that work is these proposed categories.

This round of consultation closed on Thursday, September 5th 2019.

Update - February 14th 2020 (Review of Major Lender Categories) .

A review of the current state of how closely each of the LIXI Categories map to the major lender’s categories based on information available in the public domain was performed and published on the 14th February 2020 (details here).

Update - September 16th 2019.

Updated categories were released on the 16th September 2019 in the LIXI CAL 2.6.22 release.

Update - September 12th 2019.

Clarification added to the definition of 'Other' to include the costs of operating recreational vehicles (such as caravans, trailers, motorcycles, boats and aircraft).

Update - September 6th 2019.

Three changes have been made following this round of consultation:

  • The existing category of other commitment for 'Child Maintenance' will be updated to 'Child and Spousal Maintenance' to cover Maintenance for either dependent or non-dependent children, and spousal or de facto partner maintenance.
  • The definition of Recreation and entertainment will be updated to more explicitly include music lessons.
  • References to recreational vehicles to include examples 'such as caravans, trailers, motorcycles, boats and aircraft'

Why is this important?

Aggregator groups have expressed frustration with living expense categorisation being materially different between lenders across the industry. A poor broker and customer experience is the result, as data has to be massaged for different lenders. This is inconvenient, inefficient and prone to errors. This initiative is critical for aggregators to provide efficient, accurate tools and processes to their brokers to enable expense data to be gathered.

Each lender does not need to adopt these exact categories, rather they need to accept data mapped from these categories. For example, a lender that treats expenses related to Primary and Secondary Residence identically can accept data from the broker in two separate categories and simply map them into the lender's single category.

Proposed Changes

Addition of Categories for HEM Excluded Expenses

See FAQ's for definition of Excluded Expenses.

Body Corporate Fees & Land Tax on Owner Occupied Principal Place of Residence

New category for body corporate fees & land tax on owner occupied principal place of residence. Recent HEM updates explicitly exclude these from HEM, but expect them to be included in a customer's expenses for serviceability/affordability calculations. #795

Sickness and Personal Accident Insurance, Life Insurance

New category for sickness and personal accident insurance, life insurance. Recent HEM updates explicitly exclude these from HEM, but expect them to be included in a customer's expenses for serviceability/affordability calculations. #1076

Private Schooling and Tuition

New category for private schooling and tuition expenses. Recent HEM updates explicitly exclude these from HEM, but expect them to be included in a customer's expenses for serviceability/affordability calculations. #1075

Addition of Categories to Separate Property Expenses

Primary Residence Running Costs

Fully describe all inclusions/exclusions, noting that property related insurances are included and body corporate fees & land tax on owner occupied principal place of residence are excluded. #798

Timeline of related events

Date Event/Links
Sep 6 2019 Minor updates to the category definitions published based on feedback
Sep 5 2019 Final round of consultation closes
Aug 28 2019 Proposal updated based on feedback
(22 in total: 19 living expenses + 3 other commitments)
Aug 19 2019 LIXI presents at ASIC's public hearing
Aug 1 2019 The Adviser publishes LIXI's call for feedback
Jul 30 2019 LIXI proposal advertised on LinkedIn
Jul 21 2019 LIXI proposal updated following industry consultation
Feb 19 2019 LIXI News Subscribers notified of proposal
Feb 15 2019 LIXI proposal for update opened for discussion
(22 in total: 19 living expenses + 3 other commitments)
Feb 14 2019 ASIC publishes CP309
Feb 4 2019 Hayne Royal Commission final report tabled
Jan 23 2019 LIXI2 support for automated 'Verified' assets and liabilities from transaction data released
Nov 21 2018 RFi Roundtables presents HEM changes at LIXI Forum
Nov 14 2018 LIXI invites feedback from all LIXI News Subscribers
Nov 12 2018 LIXI discussion whitepaper published
Nov 2 2018 Member change request raised to support aggregated transactional data to support verification
Aug 2018 Melbourne Instutute updates HEM using 2015/16 HES
Dec 13 2017 LIXI standard categories released
(15 in total: 12 living expenses + 3 other commitments)
Sep 13 2017 ABS publishes 2015/16 HES results
Dec 13 2016 LIXI standard IO reasons released by working group
Sep 14 2016 ASIC publishes REP 493 Review of IO home loans: Mortgage brokers’ inquiries into consumers’ requirements and objectives
Nov 2015 LIXI establishes Living Expenses Working Group

20 Aug 2015 ASIC publishes REP 445 Review of IO home loans

Secondary Residence Running Costs

Fully describe all inclusions/exclusions, noting that property related insurances are included. #798

Investment Property Running Costs

Fully describe all inclusions/exclusions, noting that property related insurances are included. #798

Addition of Categories to Accommodate Different Lender Treatments

Health Insurance

New category for health insurance including hospital, medical and dental insurance. This is required as recent HEM updates clarify this expense as Non-Basic, although many lenders still include in a customer's expenses for serviceability/affordability calculations. #1054

Higher Education, Vocational Training and Professional Fees

New category for Higher Education, Vocational Training and Professional Fees. This is required as some lenders have requested separation from Government Primary and Secondary Education, and there is no better place than this. Importantly this approach ensures correct HEM treatment. #1082

Public or Government Primary and Secondary Education

New category for Public or Government Primary and Secondary Education. This is required as some lenders have requested separation from Tertiary and Vocational Education. #1081

Pet Care

Create a new category for Pet Care Expenses (excluding pet insurance which is a Non-Basic Insurance). Required to accommodate some lenders that want to treat pets as dependants and others as recreation. #1055

Addition of Categories to Collect Remaining HEM Basic Insurances

General Basic Insurances

New category for HEM Basic Insurances, not captured elsewhere. Includes ambulance, car (not recreation vehicles), travel, and personal belongings insurance. Excludes property (house and contents), health, sickness and personal accident, life and pet insurance. #1084

Expand Definitions to Remove Ambiguity

Childcare

Update description to clearly include non-compulsory pre-school. #890

Medical & Health

Expand the definition to be more descriptive. #893

Recreation & Entertainment

Expand the definition to be more descriptive, removing overseas holidays and pet care. #894

Groceries

Update description to exclude alcohol (covered under Recreation & Entertainment). #892

Clothing & Personal Care

Expand the definition to be more descriptive. #891

Transport

Expand the definition to be more descriptive, excluding recreation vehicle and overseas holiday transport. #808

Other

Expand the definition to offer more guidance as to what else should be included. Includes ongoing or recurring items including (but not limited to) pet insurance, insurance not elsewhere classified, registration and insurance of recreational vehicles, overseas holidays, gifts, jewellery, household services including cleaning, gardening, housekeeping, security and pest control services. #1085

Deprecate item for future deletion

Education

New categories for education (#1075, #1081 & #1082) make this category redundant. #1083

Owner occupied property utilities, rates and related costs

New categories for owner occupied property costs (#795 & #798) make this category redundant. #1079

Insurance

All insurances are now allocated out to other categories making this category redundant. #1078

Child Maintenance

New category for Child and Spousal Maintenance (#1093) makes this category redundant. #1094

New Category of Other Commitment

Child and Spousal Maintenance

New category for maintenance for either dependent or non-dependent children, and spousal or de facto partner maintenance.

No Change required

Telephone, internet, pay TV and media streaming subscriptions

Other Commitments

Includes: Board, Rent

Proposed Categories

Included in HEM (Absolute Basic & Basic Discretionary)
Expense Category Detailed Description Ticket
Childcare Childcare including nannies and non-compulsory pre-school. #890
Clothing and personal care Clothing, footwear, personal care products, cosmetics, hair services and accessories (including travel goods, handbags, umbrellas, wallets, baby-goods) for men, women, children and infants, including purchases, repairs and alterations. #891
General Basic Insurances General basic insurances include ambulance, car (not recreation vehicles), travel, and personal belongings insurance. Excludes property (house and contents), health, sickness and personal accident, life, income protection and pet insurance. #1084
Groceries Groceries (food and non-alcoholic beverages), toiletries and cleaning products. #892
Medical and health Medical and health care services including GPs, specialists, physiotherapists, chiropractors, and opticians. Medicines, pharmaceuticals, prescriptions, glasses, purchase or hire of therapeutic appliances and equipment, hospital charges, nursing home charges. Excludes health insurance and ambulance insurance. #893
Recreation and entertainment Meals in restaurants, hotels and clubs, fast food and takeaway including coffee. Alcoholic beverages and tobacco products. Purchase, hire, repair of recreational personal belongings including electronics, computers, games consoles, AV equipment, cameras. Toys, hobbies, stationery, arts, crafts, sports, camping, fishing and recreation equipment including musical instruments, accessories and lessons. Non-subscription TV, video, games, and audio content, books, newspapers, magazines (including physical material and digital content). Recreation, gym, and health and fitness studios fees, Court hire, sports lessons, Admission fees and tickets (sports, theatre, gallery, museum, music events). Domestic Holidays (fares, fuel, accommodation, theme parks, zoos tours). Recreational gambling, including lottery-type games, scratch cards, poker machines, club and casino gaming, and sports betting. Excludes travel insurance. #894
Telephone, internet, pay TV and media streaming subscriptions Telephone accounts (home and mobile), internet, pay TV and media streaming subscriptions (such as Netflix and Spotify). No change
Transport Public transport, taxis, ride-sharing and non-holiday domestic airfares (excludes overseas airfares). Running costs for essential vehicles including fuel, servicing, repairs, parking, tolls (excludes insurance) and registration of motor vehicles (excludes recreational vehicles such as caravans, trailers, motorcycles, boats and aircraft). #808
Public or government primary and secondary education Public or government, primary and secondary school tuition, school and sports fees including compulsory kindergarten/reception/pre-primary/prep. #1081
Higher Education, Vocational Training and Professional Fees Higher education and vocational training fees (including TAFE, business college, drama, music, dance) excluding HECS, and professional fees (union dues, professional association subscriptions, legal, accountant and tax agent fees). #1082
Primary Residence Running Costs Costs associated with the primary residence, either owned or rented. Includes rates, water, sewage, repairs and maintenance, electricity, gas, heating oil and wood for fuel, purchase, hire and repair of household and outdoor furnishings and equipment, furnishings, floor coverings, linen, tableware, gardening tools, power tools, electrical, lights, trees, shrubs, plants, pool chemicals, home insurance, contents insurance and appliance insurance. Excludes body corporate fees, strata fees and land tax. #798
Pet Care Pet food, grooming, minding services, care products, health products, veterinarian fees. #1055
Excluded from HEM
Expense Category Detailed Description Ticket
Sickness and personal accident insurance, life insurance Sickness and personal accident insurance, life insurance. #1076
Private Schooling and Tuition Tuition fees, school fees and sports fees for private schooling, including independent schools (Catholic or non-Catholic) and private tuition including compulsory age kindergarten/reception/pre-primary/prep. #1075
Body Corporate Fees, Strata Fees and Land Tax on Owner Occupied Principal Place of Residence Body corporate fees, strata fees and land tax on owner occupied principal place of residence. Excludes investment properties, secondary residences, and properties maintained for other purposes such as holiday properties or residences maintained for parents or children. #795
HEM Non Basics
Expense Category Detailed Description Ticket
Health Insurance Health insurance including hospital, medical and dental insurance. #1054
Investment Property Running Costs Costs associated with any property owned for investment purposes. Includes body corporate fees, strata fees, land tax, property management fees, rates, water, sewage, repairs and maintenance, electricity, gas, heating oil and wood for fuel, purchase, hire and repair of household and outdoor furnishings and equipment, furnishings, floor coverings, linen, tableware, gardening tools, power tools, electrical, lights, trees, shrubs, plants, pool chemicals, landlords insurance, home insurance, contents insurance and appliance insurance. #798
Secondary Residence Running Costs Costs associated with any secondary residence, either rented or owned for non-investment purposes, such as a holiday property that is not rented to generate income, or a property that family members (parents or children) are allowed to live in rent-free. Includes body corporate fees, strata fees, land tax, property management fees, rates, water, sewage, repairs and maintenance, electricity, gas, heating oil and wood for fuel, purchase, hire and repair of household and outdoor furnishings and equipment, furnishings, floor coverings, linen, tableware, gardening tools, power tools, electrical, lights, trees, shrubs, plants, pool chemicals, landlords insurance, home insurance, contents insurance and appliance insurance. #798
Other Other ongoing or recurring items not included within the other categories including, but not limited to pet insurance, insurance not elsewhere classified, registration, insurance and operation of recreational vehicles (such as caravans, trailers, motorcycles, boats and aircraft), overseas holidays, gifts, jewellery, household services including cleaning, gardening, housekeeping, security and pest control services. #1085
Other Commitments
Expense Category Detailed Description Ticket
Board Board paid. No Change
Child and Spousal Maintenance Maintenance for either dependent or non-dependent children, and spousal or de facto partner maintenance. #1093
Rent Rent on primary residence. No Change

FAQs

This section addresses some of the common questions asked during the industry consultation.

  • Q: What is the difference between Non-Basic and Excluded expenses?
    A:"The difference between nonbasic and excluded expenditures which are both excluded from the HEM, is that non-basic expenditures are considered 'luxury' expenditures which can be done without easily, while excluded expenditures are basic expenditures on which separate information needs to be collected from the loan applicants due to extremely high variability in commitments amongst households (even those with similar characteristics)."
    Source: "Re-development of the Household Expenditure Measure (HEM) based on the Household Expenditure Survey 2015/16 - A note for HEM subscribers describing the new approach and data" by Nicolas Hérault, Guyonne Kalb and Mael Guillou, Melbourne Institute: Applied Economic and Social Research, University of Melbourne, August 2018
  • Q: There are 22 categories (19 Living Expenses + 3 Other Commitments) proposed which seems a large increase over the 15 (12+3) previously used. Why not combine more of the categories?
    A: The net increase of 7 is mostly due to changes to HEM that require some items to be separated, for example Private School expenses. Some are because lenders have different approaches (pet care & health insurance). Of course we could aggregate more, all the excluded items for example (private schooling, land tax, life insurance etc) but they are quite unrelated and do not make a logical category.
  • Q: Why is pet insurance not included within pet care?
    A: Pet care is within HEM, whilst pet insurance is not, therefore pet insurance should not be aggregated with other Pet Care expenses for comparison with HEM.
    In fact, pet insurance is not even listed in the Australian Bureau of Statistics Household Expenditure Classification Coding List that forms the basis for the Household Expenditure Survey. The full list is available on the ABS Website here, in the Appendix 7 - HEC Coding List 2015-16.xls file. Therefore the appropriate category for Pet Insurance is 'Insurance nec' (not elsewhere classified), which is regarded as HEM Non-Basic and should not be included in a comparison against HEM.
  • Q: Why is health insurance not included within medical and health?
    A: Health insurance is Non-Basic, while the other Medical and Health items are HEM Basic, so they cannot be combined, and still allow like-for-like comparison with HEM
  • Q: Why are land tax and body corporate fees on owner-occupied primary residence collected separately whilst they are included within investment property and secondary residence categories?
    A: Land tax and body corporate fees on an owner-occupied principal place of residence are considered excluded expenditure for HEM purposes. It is expected to be collected separately and not included within the comparison against HEM. The same is not the case for other properties, and therefore collecting within the other property expenses is reasonable to minimise the number of categories.
  • Q: Some insurances were going to be collected across multiple categories - Ambulance in health, travel in Recreation etc. Why did that approach change?
    A: Member feedback highlighted the difficulty in identifying the different insurance types from transactional data, and suggested that it would be better to limit the number of categories across which insurance is split. This approach was more widely supported than distributing the insurances into their related categories.
  • Q: Why are property expenses split between primary, secondary and investment?
    A: HEM guidelines issued in September 2018 direct that all investment property-related costs should now be deducted from corresponding revenues. Additionally, the definition of 'Owner-occupied (housing loan)' in the ABS/RBA definitions for the EFS collection requires that the loan is for the principal place of residence. Many lenders treat a secondary residence differently to an Investment Property for serviceability calculations, therefore the three categories are required.
  • Q: Where should school uniforms, books, pencils, pens etc be captured
    A: The three categories of education expenses are for fee & tuition related costs only - uniforms would be considered as 'Clothing and personal care' with books, pencils and pens considered as stationery in 'Recreation and entertainment'.
  • Q: Child maintenance can be paid for both dependent and non-dependent children. For example, custody may be shared evenly (so the child is considered a dependant) but the applicant may still pay child maintenance. Therefore should 'Child maintenance' cover both dependent and non-dependent children?
    A: A new category of 'Other Commitment' for 'Child and Spousal Maintenance' has been created (based on the consultation period that closed on the 5th September).
  • Q: Where should spousal support and de-facto support be captured?
    A: A new category of 'Other Commitment' for 'Child and Spousal Maintenance' has been created (based on the consultation period that closed on the 5th September).

First Published: 28th August 2019 | Last Updated: 17th February 2020