The Pros and Cons of Buying a Holiday Home with a Loan

Financing a Holiday Home Is Treated as an Investment Purchase

Lenders classify holiday homes as investment properties regardless of whether you intend to rent them out. This classification changes the interest rate, the serviceability buffer applied, and the loan-to-value ratio you can access. A holiday home at the Sunshine Coast purchased at $900,000 with a 15% deposit will be assessed at investment rates, which typically sit 0.30% to 0.60% above owner-occupied rates depending on the lender. The property will also be stress-tested at a rate of at least 3.0 percentage points above the loan product rate under APRA's serviceability buffer, applied to both your existing debt and the proposed loan. If you already hold a mortgage on your primary residence, the combined exposure matters more than either loan in isolation.

Consider a buyer earning $140,000 annually with an existing owner-occupied mortgage of $600,000. Adding a holiday home loan of $750,000 at investment rates means the lender will assess serviceability at the combined loan total, stress-tested at current investment loan rates plus the buffer. In this scenario, the buyer's debt-to-income ratio is just over five times gross income. APRA's DTI lending limit, active from 1 February 2026, restricts lenders to writing no more than 20% of new investor loans to borrowers with a DTI of six times or greater. While this buyer sits below that threshold, the combined exposure still tightens their borrowing capacity significantly.

You Cannot Use the Australian Government 5% Deposit Scheme

The Australian Government 5% Deposit Scheme applies only to first home buyers or eligible single parents purchasing a principal place of residence. A holiday home does not meet the owner-occupied requirement, which means you cannot access the scheme's deposit guarantee or waiver of lenders mortgage insurance. If you are purchasing with less than a 20% deposit, you will pay LMI on the full loan amount. At an LVR of 85%, LMI on a $750,000 loan can exceed $20,000 depending on the insurer and your individual risk profile. That premium is capitalised into the loan or paid upfront at settlement.

Some Lenders Restrict Holiday Homes in Certain Locations

Lenders apply postcode-level risk assessments to all residential property, and holiday destinations often attract additional scrutiny. Properties in areas with high concentrations of short-term rental stock, seasonal occupancy or limited permanent population may be deemed higher risk. Some lenders will lend only up to 70% or 80% LVR in these postcodes, while others exclude them entirely from their credit policy. The Gold Coast, Sunshine Coast, Byron Bay hinterland and parts of the Whitsundays all fall within postcodes where individual lender appetite varies. If you are purchasing in a location that generates most of its economic activity from tourism, confirm postcode eligibility with your broker or lender before proceeding to contract.

Rental Income Is Only Partially Counted Toward Serviceability

If you intend to rent the holiday home for part of the year, lenders will include a portion of that rental income in their serviceability assessment. Most lenders apply a shading factor of 70% to 80%, meaning they will recognise only $700 to $800 of every $1,000 in expected rent. This shading accounts for vacancy periods, seasonal fluctuations, and management costs. Short-term rental income through platforms is generally treated more conservatively than long-term tenancies due to the variability in occupancy. Some lenders will not recognise short-term rental income at all unless you can demonstrate a 12-month history of bookings or provide a signed management agreement with projected income. If the property will remain unoccupied for personal use during peak rental periods, that income assumption weakens further.

Interest on a Holiday Home Loan Is Not Deductible Unless the Property Generates Income

Under the Income Tax Assessment Act 1997, interest on a loan used to purchase an investment property is deductible against assessable income to the extent the property is used to produce income. If the holiday home is used exclusively for personal purposes and generates no rental income, the interest is a private expense and cannot be claimed. If the property is rented for part of the year and used personally for the remainder, you can claim a proportional deduction based on the number of days it was genuinely available for rent and genuinely rented. The Australian Taxation Office applies scrutiny to claims where a property is listed as available but not actively marketed, or where personal use coincides with peak rental periods. Owners who use the property for two weeks over Christmas and list it as available for rent during the off-season may find their deduction reduced or disallowed on review.

Fixed and Variable Rate Structures Apply the Same Way as Primary Mortgages

You can structure a holiday home loan with a fixed rate, variable rate, or split between the two. Fixed rates provide certainty over repayments for a set term, typically between one and five years, but carry break costs if you repay early or sell the property before the term ends. Variable rates allow unlimited additional repayments and typically include access to an offset account. If you plan to use surplus income or rental proceeds to reduce the loan balance ahead of schedule, a variable or split structure may be more suitable. A split loan allows you to fix a portion for rate certainty while keeping the remainder variable for flexibility. Lenders apply the same suite of loan features to holiday homes as they do to investment properties, including portability and the ability to capitalise LMI into the loan amount.

Stamp Duty and Land Tax Apply in Full

Stamp duty on a holiday home is calculated at the standard investor rate in the state or territory where the property is located. Queensland applies standard transfer duty rates to all investment properties, with no concessions available for holiday homes. At a purchase price of $900,000, transfer duty in Queensland is approximately $33,000. First home buyer concessions and exemptions do not apply because the property is not your principal place of residence. Land tax is assessed annually by the Queensland Revenue Office on the total taxable value of land you own in Queensland that is not your principal place of residence. The 2026-27 land tax threshold in Queensland is $600,000, with rates applied progressively above that amount. A holiday home on the Sunshine Coast with a land value of $450,000 would fall below the threshold if it is the only investment property you own in Queensland, but if you also hold another investment property, the combined land value determines your liability.

Selling a Holiday Home Triggers Capital Gains Tax Without the Main Residence Exemption

A holiday home does not qualify for the main residence exemption under the CGT provisions of the Income Tax Assessment Act 1997. When you sell, the capital gain is calculated as the difference between the purchase price plus acquisition costs and the sale price less disposal costs. For gains accruing up to 1 July 2027, the 50% CGT discount applies if you have held the property for more than 12 months. From 1 July 2027, the discount is replaced by cost base indexation and a 30% minimum tax rate on capital gains accruing from that date, as legislated under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. If you purchase a holiday home after 12 May 2026 and it is an established dwelling rather than a new build, any losses from holding the property are deductible only against other residential property income from the 2027-28 income year onward, not against salary and wages.

Call one of our team or book an appointment at a time that works for you. Alpha Financial can help you structure a holiday home loan that fits your income, your existing debt, and the location you are buying in.

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