Everything You Need to Know About Holiday Home Loans

A holiday home is treated differently by lenders depending on whether you intend to earn income from it.

If you plan to rent the property through platforms or holiday management agencies, most lenders will classify it as an investment loan. If you intend to use it exclusively for personal holidays with family and friends, many lenders treat it as a second owner-occupied property, though lending criteria can be more restrictive. The structure you choose affects your borrowing capacity, your interest rate, and your tax position.

Deposit Requirements Are Often Higher Than Your First Home

Lenders typically require a larger deposit for a holiday home than they would for your primary residence. A second property usually requires at least 20% deposit to avoid Lenders Mortgage Insurance (LMI), though some lenders will accept 10% if you have strong income and equity in your current home. If the property will be rented, lenders assess the loan as an investment loan, which changes how they calculate your ability to service the debt.

Consider a buyer who owns a home in South Brisbane worth $750,000 with a remaining mortgage of $400,000. They want to purchase a holiday property on the Sunshine Coast for $600,000. With $350,000 in accessible equity and strong employment income, they could potentially borrow using equity from their existing property rather than providing a cash deposit. The lender will still assess whether the rental income from the holiday home, if applicable, can support the additional loan.

How Lenders Assess Rental Income From Holiday Properties

Rental income from a holiday home is discounted more heavily than income from a standard residential investment. Most lenders will only accept 50% to 70% of the declared rental income when calculating your borrowing capacity, compared to 80% for a permanent rental. Short-term holiday rentals are considered less reliable because occupancy fluctuates with seasons and tourism trends. If the property is in a coastal location with strong summer demand but low winter occupancy, the lender will take a cautious view of projected income.

In our experience working with clients purchasing properties in areas like the Gold Coast hinterland or beachside locations near Byron Bay, the rental assessment can make or break the application. A property generating $40,000 annually in short-term rental income might only be assessed at $28,000 for serviceability purposes. That difference directly impacts how much you can borrow and whether you need to reduce the purchase price or increase your deposit.

Should You Structure It as Owner-Occupied or Investment?

You cannot claim a property as owner-occupied if you are regularly earning rental income from it. If you rent the property out for even part of the year, it must be classified as an investment for loan purposes. Owner-occupied loans typically offer lower interest rates, but they require you to use the property primarily for personal purposes. Some lenders allow a small number of weeks per year where you might let friends or family stay, but the moment you advertise it commercially or accept payment, the loan needs to be structured as investment.

The decision also has tax implications. An investment property allows you to claim expenses including loan interest, property management fees, and depreciation. An owner-occupied holiday home offers no tax deductions but avoids capital gains tax if you sell, provided it meets certain usage criteria with the Australian Taxation Office. You will need to consider both the loan structure and the tax treatment together, not in isolation.

Fixed or Variable Rate for a Holiday Property

Holiday homes held as investments are often suited to a variable rate or split loan structure because rental income can fluctuate and you may want to make additional repayments during high-income periods. A variable rate allows you to pay down the loan faster without penalty, while a fixed rate locks in certainty if you are concerned about rate movements. If the property is purely for personal use and you want predictable repayments, a fixed portion of the loan may suit your circumstances.

Some buyers split the loan 50/50 between fixed and variable, which provides partial rate protection while maintaining flexibility. This is particularly relevant if you are using an offset account linked to the variable portion, as funds in the offset reduce the interest you pay while remaining accessible for maintenance costs or rates.

How Location Affects Loan Approval

Lenders assess holiday properties differently depending on where they are located. A property in a well-established coastal town with consistent tourism will be viewed more favourably than a remote rural property with limited rental potential. If you are buying in a small town or regional area, you may find fewer lenders willing to finance the purchase, particularly if comparable sales are limited or property values are declining.

South Brisbane buyers looking at holiday properties in areas like Noosa, the Sunshine Coast, or northern New South Wales typically have access to a wide range of lender options. Properties in these locations have strong demand and established rental markets. A property in a less-travelled regional area may require a larger deposit or attract a higher interest rate due to perceived risk.

Using Equity in Your Current Home to Fund the Purchase

Many holiday home buyers use equity from their existing property rather than providing a cash deposit. If you have owned your home in South Brisbane for several years and it has increased in value, you may have sufficient equity to borrow up to 80% of your current property's value and use the difference to fund the deposit on your holiday home. This approach keeps your cash available for other purposes but increases the debt secured against your primary residence.

You will need a valuation on your existing property and a clear understanding of how much you can access without triggering LMI. If your current home is valued at $800,000 and you owe $300,000, you have $500,000 in equity. Borrowing up to 80% of the value means you can access up to $640,000 in total debt, leaving $340,000 available for the holiday home deposit and associated costs. The lender will still assess your ability to service both loans together.

Call one of our team or book an appointment at a time that works for you. We can review your equity position, compare lender options, and structure the loan to suit whether you are using the property for personal holidays or generating rental income.

Frequently Asked Questions