National Australia Bank (NAB) is making a key change to its mortgage assessment rules that could boost the borrowing power of some homebuyers by up to $30,000. Starting Friday, May 23, the bank will revise how it treats body corporate and strata fees in its loan calculations for owner-occupied properties. The update is expected to benefit first-home buyers and those purchasing townhouses, units, and apartments.
The change relates to NAB’s use of the Household Expenditure Measure (HEM)—a standard tool used across Australian banks to estimate monthly living costs based on a borrower’s demographic profile. Previously, NAB treated strata fees as additional living expenses, which could heavily reduce borrowing capacity. Now, the bank will classify these unavoidable fees under general living costs in the HEM framework, aligning them more closely with standard housing expenses.
How The Adjustment Change Borrowing Capacity
David Pelligra, a mortgage broker who welcomed the move, explained that body corporate fees have “wildly impacted” applicants’ serviceability, despite being a mandatory cost for many apartment owners. Pelligra shared the example of a client whose $3,000 annual fee—equivalent to $250 per month—was previously treated as an additional expense, significantly limiting the amount she could borrow. With the new approach, that same borrower could see her loan approval amount increase by around $30,000.
Banks determine loan eligibility by combining HEM-based estimates with a borrower’s declared additional living expenses. While HEM includes essential spending like utilities, groceries, and fuel, optional expenses such as life insurance or private school fees fall under separate scrutiny. Until now, strata fees were mistakenly categorized in that “optional” tier—even though apartment owners have no choice but to pay them.
Ironic this gets released on a day the 10 year breaks through the technical support level of 4.50%. The 30 YR MBS 6% coupon is down 35 bps today – AKA mortgage rates will be higher today https://t.co/BrDw0vJyFH
— The AI Mortgage Guy (@AImortgages) May 21, 2025
Improving Mortgage Assessments for Modern Housing Trends
The policy change reflects the growing shift toward higher-density housing across Australia’s urban centres. As more first-time buyers turn to apartments and townhouses for affordability, NAB’s revised HEM calculation acknowledges the real cost structures of these types of dwellings. The bank stated the update provides a “more accurate representation of regular household costs,” ensuring borrowers are not unfairly penalized.
The new classification aligns NAB’s model with the reality that strata and body corporate fees are standard obligations tied to owning property in multi-residential complexes. By embedding these fees into the general living expenses already included in HEM, NAB streamlines its loan assessment process and brings it more in line with how modern homeownership functions in cities like Sydney, Melbourne, and Brisbane.
Practical Implications for Buyers and Brokers
For brokers, the change simplifies loan application strategies for clients seeking to purchase strata-titled properties. Pelligra told Yahoo Finance that this is a “common-sense move” that directly responds to challenges frequently faced by his clients. While seemingly minor on paper, the reclassification can materially shift an applicant’s borrowing threshold—especially for those on tight budgets or fixed incomes.
NAB’s update could influence how other major lenders approach expense classification going forward, particularly as affordability constraints reshape the Australian housing market. With the change taking effect May 23, mortgage applicants purchasing apartments or similar properties may find themselves eligible for larger loans than previously expected under the old assessment rules.
