How Do Australian Lenders Treat Child Support and Dependants?

How Australian home loan lenders assess child support payments & more

Find out how Australian home loan lenders assess child support payments, shared-care arrangements, dependants and household living expenses.

Child support and dependent children can both affect home loan borrowing capacity, but lenders do not all calculate them in the same way.

The central question is not simply whether the applicant has children. The lender also considers:

• where each child primarily lives;
• the percentage of care;
• whether the applicant pays or receives child support;
• whether the payment is formal or informal;
• which parent pays day-to-day costs; and
• whether additional expenses arise during periods of care.

Depending on the circumstances, a lender may include the child as a dependant, record the child support as a separate outgoing commitment, or include both.

Is child support included in HEM?

HEM, or the Household Expenditure Measure, is a benchmark used by many lenders when assessing household living expenses.

Regulated lenders are generally expected to use the higher of the borrower’s declared living expenses or the applicable statistical benchmark, while also making reasonable inquiries into the borrower’s actual circumstances.

Child support is commonly treated as a separate financial commitment rather than being absorbed into the ordinary HEM figure.

This allows the lender to account for a legally or practically recurring payment that may not be adequately reflected in a standard household benchmark.

Will a lender count both the child and the child support payment?

Sometimes.

This is most likely where the child spends a significant amount of time with the applicant.

A parent may pay child support while also meeting costs for:

• food;
• clothing;
• transport;
• school activities;
• medical expenses;
• entertainment;
• utilities; and
• suitable accommodation.

Where those costs continue during the applicant’s care periods, recording both a dependant and the child support payment may accurately reflect the applicant’s position.

Where the child does not primarily live with the applicant and the applicant’s main financial responsibility is the child support payment, some lenders allow the payment to replace the dependant count.

What do lender policies say?

At least six of the lender policy sets reviewed explicitly allow a child who does not primarily reside with the applicant to be excluded as a dependant where the outgoing child support payment is separately included.

These include policies from Westpac, Bankwest, Commonwealth Bank, MyState, People First Bank and St.George.

Their detailed treatment varies.

Child does not live with the applicant

Where the child lives primarily with the other parent, several lenders allow:

• no dependant to be entered; and
• the verified child support payment to be recorded as an outgoing commitment.

The lender may still capture additional costs if the applicant regularly pays school fees, medical expenses or other costs outside the child support arrangement.

Shared care below 50%

Where the applicant has less than half of the care, some lenders allow the dependant to be excluded if child support is being paid.

Other policies assess the percentage of care and include a proportion of the child’s living costs.

People First Bank’s policy, for example, distinguishes situations where the applicant has no more than approximately 35% care. Child support can be recorded as an expense, while additional costs during care periods must still be captured.

Equal or near-equal care

Where care is approximately 50/50, lender policies commonly include:

• the child as a dependant; and
• the outgoing child support payment as a separate commitment.

The reasoning is that the parent continues to maintain a home for the child and pays a meaningful share of ordinary living expenses, even while making support payments to the other parent.

Bankwest and Commonwealth Bank both have detailed shared-care treatments along these lines.

No formal child support payment

If a child does not live with the applicant and there is no identifiable child support payment, some lenders may still include the child as a dependant.

The lender will want to understand how the applicant contributes financially and whether informal payments or direct expenses are being made.

Example: child lives primarily with the other parent

An applicant has one child who lives with their former partner. The applicant pays $800 a month under a formal child support assessment and has the child every second weekend.

Under one lender’s policy, the child may be excluded from the dependant count and the $800 monthly payment entered as a separate commitment.

Another lender may also include an allowance for food, transport and activities incurred during the applicant’s care periods.

Example: equal shared care

An applicant has two children under an equal shared-care arrangement and pays $400 a month in child support.

A lender may include:

• two dependants;
• the $400 monthly child support payment; and
• any material school, medical or childcare costs paid separately.

Although this can feel like double counting, the borrower is both making the support payment and maintaining a household for the children half of the time.

What if child support is deducted from salary?

A payroll deduction does not remove the commitment.

The lender may use the applicant’s gross income for servicing and enter the child support payment separately. Alternatively, it may rely on the net income shown after the deduction, depending on its calculator and assessment process.

Care is needed to ensure the same payment is not deducted twice.

What if the applicant receives child support?

Received child support is a separate income question.

Some lenders accept it where:

• payments are supported by a formal assessment or agreement;
• a satisfactory payment history is available;
• the child is below the lender’s maximum eligible age;
• payments are expected to continue for a sufficient period; and
• the income can be verified from bank statements or government records.

Other lenders shade the income, restrict how much can be used or exclude it entirely where payments are informal or inconsistent.

Receiving child support does not necessarily mean the associated child is removed as a dependant. The lender will still assess the child’s living costs.

What evidence is usually required?

The lender may request:

• a Services Australia child support assessment;
• a court order or binding child support agreement;
• three to six months of bank statements;
• payslips showing payroll deductions;
• evidence of the custody or shared-care arrangement;
• details of school or childcare fees;
• evidence of private health or medical costs; and
• an explanation of other recurring payments for the child.

Where the arrangement is informal, the lender may rely on actual transaction history and the applicant’s explanation.

Why accurate disclosure matters

Leaving a child out of the application does not necessarily improve borrowing capacity if the applicant continues to incur costs for that child.

Likewise, entering every child as a full dependant without explaining the custody arrangement can produce an unnecessarily conservative result with a lender whose policy allows a more proportionate treatment.

The application should reflect the actual care arrangement and payments rather than selecting whichever calculator entry produces the highest loan amount.

The main point

Lenders do not apply one universal rule to child support and dependants.

Where a child lives primarily with the other parent, several lenders allow the outgoing child support payment to replace the dependant count. Where care is equal or substantial, the lender may include both the child and the support payment because the applicant bears both costs.

The custody percentage, payment history and additional expenses should be documented before borrowing capacity is assessed.