What Not to Do When Buying a Holiday Home

Buying a holiday home isn't the same as buying your main residence.

Lenders treat it differently, the tax treatment changes, and the deposit and income requirements usually sit higher than what you needed for your owner occupied home loan. If you're a plasterer who's built some equity and wants somewhere to escape to on weekends or rent out when you're not using it, you need to understand how lenders assess this type of purchase before you start looking.

Investment Loan or Owner Occupied: Which Box Does a Holiday Home Fit?

A holiday home is treated as an investment property by lenders. Even if you never rent it out and only use it yourself, it's not your principal place of residence, so it doesn't qualify for owner occupied rates. That means you'll pay a higher interest rate, typically 0.3% to 0.6% above what you'd get on an owner occupied home loan. If you do plan to rent it out when you're not there, that rental income can help with serviceability, but the lender will only count 70% to 80% of it when assessing whether you can afford the repayments.

Consider a plasterer earning around $90,000 a year who already has a mortgage on their main home. They want to buy a modest place along the coast to use on long weekends and rent out occasionally. The lender will assess them at the higher investment rate, factor in their existing mortgage, and only apply a portion of any projected rental income. That changes how much they can borrow compared to their first purchase. If you're weighing up whether to refinance your current loan to release equity for the deposit, you can read more about home loan refinancing for tradies.

Deposit Size and Lenders Mortgage Insurance

Most lenders want at least a 10% deposit for an investment property, and many won't lend above 90% loan to value ratio without charging Lenders Mortgage Insurance. Some won't go above 80% LVR at all for a holiday home, particularly if it's in a regional or remote area. LMI on an investment loan costs more than on an owner occupied loan, and if you're borrowing at 90% LVR, the premium can run into the tens of thousands depending on the loan amount.

If you're relying on equity in your existing home to fund the deposit, the lender will calculate usable equity at 80% of your property's value minus what you still owe. That equity can cover the deposit and some of the purchase costs, but you'll still need genuine savings or accessible funds for stamp duty and other settlement expenses. Plasterers who are self-employed will also need to show two years of financials to prove income, which can slow down the application compared to a PAYG worker. More on that in our guide to self-employed loans for tradies.

Fixed Rate, Variable Rate, or Split: What Works for a Holiday Property?

Most buyers lock in a fixed interest rate on a holiday home to control repayments, particularly if they're not generating much rental income and want predictable costs. A fixed rate gives you certainty for one to five years, but it also limits your ability to make extra repayments without copping break costs if you want to pay down the loan faster. A variable rate gives you flexibility to throw extra cash at the loan when work is busy, and you can link an offset account to park income between jobs and reduce the interest you pay.

A split loan lets you fix part of the loan for stability and keep part variable for flexibility. In a scenario where a plasterer borrows for a holiday home they plan to rent out short-term during summer, a split structure can work well. They fix 60% of the loan to lock in repayments during quieter months and keep 40% variable with an offset account to manage seasonal cash flow. You can compare how different structures affect your repayments and borrowing capacity using our borrowing capacity calculator.

Location and Property Type: What Lenders Actually Care About

Lenders are cautious about regional and remote properties. If you're looking at a beach shack two hours from the nearest town or a cabin in a holiday park, expect higher scrutiny and potentially a lower borrowing limit. Properties in areas with limited comparable sales, flood zones, or bushfire-prone land can be flagged as higher risk, which means either a lower LVR cap or an outright decline from some lenders. Strata title units in coastal towns are usually easier to finance than freehold houses on large rural blocks.

Lenders also consider whether the property will hold value if you need to sell. A two-bedroom unit in a town with year-round tourism and steady rental demand is a safer bet for them than a three-bedroom house in a location that only sees visitors over summer. If you're buying in a regional area, check whether the lender has postcode restrictions before you put in an offer.

Rental Income and Tax: What You Can Actually Claim

If you rent out the holiday home when you're not using it, the income is assessable and you can claim deductions for interest, property management fees, insurance, and maintenance. But if you only rent it out for part of the year and use it yourself the rest of the time, you can only claim a proportionate amount. The ATO looks at how many days it was genuinely available for rent versus how many days you used it privately.

In our experience, plasterers who buy a holiday home with the intention of renting it out often underestimate how much time and cost goes into managing short-term rentals. If you're using a platform like Airbnb, factor in cleaning, linen, guest communication, and periods where the property sits vacant. Those costs eat into the rental yield, and lenders know it. That's why they only count 70% to 80% of projected income when assessing your application.

What Lenders Want to See Before Approving a Holiday Home Loan

Lenders treat a holiday home purchase as a higher-risk proposition than your main residence. They want proof you can service both your existing mortgage and the new loan without relying entirely on rental income. That means showing a clear track record of income, minimal consumer debt, and a deposit that doesn't stretch your cash reserves to zero. If you're a self-employed plasterer, they'll want recent tax returns, a current profit and loss statement, and sometimes a letter from your accountant confirming ongoing work.

If your borrowing capacity is tight, one option is to apply with a co-borrower such as a partner or family member, though that brings its own complications around ownership and tax. Another is to structure the loan as interest only for the first few years to reduce repayments while you build equity in the property. You can read more about that approach in our article on interest only loans for tradies.

Common Mistakes That Kill a Holiday Home Application

The biggest mistake is assuming you can borrow the same amount for a holiday home as you did for your main residence. You can't. The loan amount will almost always be lower because of the higher interest rate, the investment property assessment, and the reduced weight given to rental income. The second mistake is not accounting for the holding costs. Rates, insurance, body corporate fees, and maintenance don't stop when you're not using the property. If you're buying in a coastal area, cyclone or flood insurance can be expensive and sometimes hard to get.

Another issue is applying for pre-approval with a lender that doesn't lend in the area you're targeting. Some lenders have postcode restrictions on regional properties, and if you don't check that upfront, you'll waste time on an application that was never going to succeed. If you're planning to use equity from your current home, get a valuation done before you apply so you know exactly how much you can access. More detail on that process is covered in our guide to getting loan pre-approval.

If you're ready to talk through your situation and work out what you can borrow for a holiday home, call one of our team or book an appointment at a time that works for you. We'll run the numbers, compare lenders, and make sure you're not paying more in interest or LMI than you need to.

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