Holiday Home Loans: 5 Ways to Structure Your Purchase

A holiday home purchase involves different lending treatment than buying your primary residence.

Lenders assess holiday homes through the investment loan framework, even when you plan to use the property yourself rather than rent it out. The distinction affects your interest rate, your borrowing capacity, and the deposit required. If you're considering a coastal retreat in the Fleurieu Peninsula or a Barossa Valley weekender, understanding how loan structures apply to holiday properties determines what you can borrow and how much the loan will cost over time.

How Lenders Assess Holiday Home Purchases

Lenders classify holiday homes as investment properties regardless of how you intend to use them. The property will not be your principal place of residence, so it attracts investment loan pricing and serviceability assessment. Investment loan rates typically sit 0.30 to 0.60 percentage points higher than owner-occupied rates, depending on the lender and loan features you select. Lenders also apply a lower rental income assessment to serviceability calculations, even if you have no plans to rent the property. Most lenders assess holiday home serviceability at 80 per cent of potential rental income, or they disregard rental income entirely and assess the loan on your existing income alone. This reduces your borrowing capacity compared to what you might expect from a traditional investment loan where rental income contributes more directly to serviceability.

Consider a scenario where a buyer with a household income of $180,000 seeks to borrow $600,000 to purchase a holiday home. The lender assesses their capacity using the investment loan buffer, applies the higher investment rate, and either discounts or ignores rental income because the buyer cannot demonstrate a lease or a clear intention to generate rental income. The buyer may need to demonstrate surplus income after meeting their existing home loan commitments and living expenses. If the numbers fall short, the lender may decline the application or offer a lower amount.

Deposit Requirements and LVR for Holiday Homes

Most lenders cap holiday home loans at 80 per cent LVR, meaning you need a deposit of at least 20 per cent plus costs. Some lenders will consider LVRs above 80 per cent, but this typically requires Lenders Mortgage Insurance and may attract additional rate loading or serviceability adjustment. LMI on investment properties, including holiday homes, is calculated at a higher premium than on owner-occupied loans due to the increased risk weighting under APS 112. If you hold substantial equity in your Glenelg home, you may be able to use that equity as security rather than providing cash savings for the full deposit. This requires a cross-collateralised loan structure, which links both properties as security for the total borrowing. Some buyers prefer to keep the loans separate to maintain flexibility if they later decide to sell one property or refinance.

Split Rate and Offset Strategies for Holiday Homes

A split rate structure allows you to fix a portion of the loan and leave the remainder on a variable rate. This can suit holiday home buyers who want rate certainty on part of the debt while maintaining flexibility to make extra repayments or access an offset account on the variable portion. Fixed rates on investment loans are typically higher than fixed rates on owner-occupied loans, and most fixed rate products do not offer offset accounts or allow additional repayments beyond a small annual cap. If you split the loan 50/50, you gain partial protection from rate rises and retain access to offset and repayment features on the variable half. The variable portion can also be linked to an offset account, which reduces the interest charged without affecting your ability to access those funds. Offset accounts work particularly well for holiday homes if you plan to rent the property occasionally, as rental income can sit in the offset and reduce interest while remaining accessible for other purposes.

In a scenario where buyers borrow $650,000 for a McLaren Vale holiday home, they might fix $325,000 at a rate locked for three years and leave $325,000 variable with a linked offset. If they deposit $40,000 into the offset account, interest is charged on $285,000 of the variable portion rather than the full $325,000. This reduces the effective rate on that portion of the loan and provides liquidity if they need to access those funds before the fixed period ends.

Interest-Only Repayments and Tax Treatment

Interest-only repayments are available on most holiday home loans, typically for periods of one to five years. Choosing interest-only lowers your monthly repayment but does not reduce the loan balance during the interest-only period. Lenders assess interest-only loans using a principal and interest repayment calculation for serviceability purposes, so selecting interest-only does not improve your borrowing capacity. It does, however, improve cash flow during the interest-only period. If you plan to use the holiday home for personal use and do not generate rental income, the loan interest is not tax deductible. The negative gearing provisions that apply to investment properties only apply where the property is genuinely available for rent and you are deriving or intending to derive rental income. If you use the property exclusively for personal holidays, the ATO treats the loan as a private expense and interest cannot be offset against your taxable income. If you rent the property for part of the year and use it personally for the remainder, you may be able to claim a proportional deduction based on the days it was rented or genuinely available for rent. This requires accurate record keeping and a clear apportionment method, and you should confirm the treatment with a registered tax agent before structuring your loan or lodging your return.

Borrowing Capacity and Debt-to-Income Limits

From 1 February 2026, APRA activated a debt-to-income lending limit requiring ADIs to restrict new lending above a DTI ratio of six times gross income to no more than 20 per cent of their lending in each portfolio. If your total borrowing, including your existing home loan and the proposed holiday home loan, exceeds six times your household income, you may fall within that restricted 20 per cent, and some lenders may decline your application or require additional equity or income evidence to proceed. For a household earning $150,000, a total borrowing above $900,000 would require the lender to assess whether the loan falls within their DTI policy settings. If you already hold a home loan of $650,000 in Glenelg and seek a further $400,000 for a holiday home, your total debt of $1,050,000 represents a DTI of seven times income. Not all lenders apply the same approach to existing debt in their DTI calculation, and non-ADI lenders are not subject to the APRA limit, so working with a broker who understands each lender's policy gives you access to a wider pool of options. Blackfish Finance maintains relationships with both ADI and non-ADI lenders and can structure your application to suit the policy settings of the lender most likely to approve your scenario.

Structuring Security and Loan Separation

You can structure holiday home finance as a standalone loan secured only against the holiday property, or as a loan linked to your existing home through cross-collateralisation. Standalone security keeps the two properties legally separate, which simplifies future refinancing or sale. Cross-collateralisation can increase your borrowing capacity or reduce the deposit required, but it also means the lender holds security over both properties for the total debt. If you default on either loan, the lender can enforce against both properties. Some buyers use their existing Glenelg home as security for the deposit on the holiday home, then refinance once the holiday home has settled to release the Glenelg property from the security pool. This approach requires careful timing and a refinancing strategy that accounts for valuation risk and settlement coordination. If you plan to use equity rather than cash savings, discuss the security structure with your broker before committing to a purchase contract. The structure you choose affects the loan documentation, the discharge process if you later sell, and your flexibility to refinance individual properties independently.

Call one of our team or book an appointment at a time that works for you. Blackfish Finance works with Glenelg residents to structure holiday home loans that align with your income, equity position, and intended use of the property.

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