Key Takeaways
• A holiday home is used partly by you and often rented out, which sits between a home and an investment.
• Lenders usually treat a holiday home that is rented as an investment, with investment rates and terms.
• Short-term holiday rental income is assessed cautiously, so serviceability often leans on your own income.
• Recent tax rules can limit or deny deductions if a holiday home is used mainly for private enjoyment rather than to earn income.
A holiday home is a particular kind of purchase: part lifestyle, part investment. You buy it to enjoy yourself, perhaps for a few weeks each year, and rent it out the rest of the time to help cover the costs. That mix of personal use and rental income makes financing a holiday home a little different from both a standard home and a straightforward investment property.
This guide explains how lenders view holiday homes, how seasonal rental income is treated, what to consider about location and cost, and the tax basics when you both use and rent a property, an area that has changed recently. As tax is involved, it is general information rather than advice, and worth confirming with an accountant.
Holiday homes can be trickier to finance than they first appear, partly because lenders and locations vary so much. If you would like help finding a lender that suits your plans, we are happy to talk it through with no cost and no pressure.
How Lenders View a Holiday Home
The first thing to understand is how a lender is likely to classify your holiday home, because that shapes the rate and the terms.
If you intend to rent the property out at all, even part of the time, most lenders will treat it as an investment, with investment interest rates and lending terms rather than owner-occupier ones. A property you keep purely for your own use, and never rent, may be treated differently, but since most holiday homes are rented at least seasonally, the investment classification is the common one. Lender policies vary, so the same property can be viewed differently from one lender to the next, which is part of why the choice of lender matters here.
How Seasonal Rental Income Is Treated
This is where holiday homes differ most from ordinary investment properties, and it catches some buyers out.
With a standard investment property on a long-term lease, a lender will usually count a good portion of the rent, often around 70% to 80% after allowing for costs and vacancy, towards your serviceability. Short-term or holiday rental income is treated far more cautiously. It is seasonal and variable, with gaps between bookings and quieter months, so many lenders count only a portion, sometimes a little more than half, and some will not count projected holiday letting income at all without an established history. The practical effect is that your serviceability often leans on your own income rather than on the rental you expect from the property. It is wise to plan to be able to afford the loan through the quiet season without relying on full bookings.
Location and Lender Appetite
Where the holiday home is can matter as much as the property itself.
Holiday homes are often in coastal, regional, or resort areas, and lenders can be more cautious there. Some apply restrictions in certain holiday postcodes, where the market is smaller, and resale can be slower, by capping how much they will lend or requiring a larger deposit. Certain property types add complexity too, such as serviced apartments or units in resort complexes with management agreements, which some lenders will not finance at all. None of this makes a holiday home impossible to fund; it simply means the right lender for the location is not always the obvious one, and it pays to check appetite before you commit.
The Costs to Factor In
Beyond the loan itself, a holiday home carries running costs that are worth tallying up before you buy. On top of your repayments, typically at an investment rate, you can expect:
• Council rates, insurance, and maintenance on a second property.
• Strata or body corporate fees, if it is a unit or in a complex.
• Management and cleaning fees, if you let it out through a holiday manager.
• The cost of vacancy, during quieter periods when it is neither used nor booked.
Set against these, the rental income can offset a meaningful share of the costs, but rarely all of them once your own use is taken into account. Going in with a realistic budget, rather than an optimistic one, keeps the property enjoyable rather than stressful.
The Tax Basics When You Use and Rent
When a property is both used privately and rented out, the tax treatment depends heavily on how it is mainly used, and the rules in this area have tightened recently, so it is one to take seriously.
If your holiday home is genuinely held mainly to produce rental income, the rental income is assessable, and you can claim deductions for the costs of earning it. Even then, you can only claim for the periods the property is rented out or genuinely available for rent, not the times you use it yourself or reserve it for family and friends, so expenses are apportioned between private and rental use.
What changed recently is the treatment of holiday homes used mainly for private enjoyment. Under updated Australian Taxation Office guidance, if a property is considered to be held mainly for your own recreation rather than to genuinely produce income, for example, if it is regularly kept free over peak holiday periods for your own use, it can be treated as a 'leisure facility', and deductions, including interest, rates and maintenance, may be denied altogether rather than simply apportioned. The distinction now turns on genuine intent and actual use, not just whether the property is advertised for rent. These rules apply to new arrangements from late 2025, so a holiday home bought now sits squarely under them.
Capital gains tax also applies when you sell, since it is not your main residence. Given how detailed and recently changed this area is, it is general information only, and well worth sitting down with an accountant or registered tax agent before you buy, so you understand how your intended use affects what you can claim.
A Real-World Example: A Coastal Holiday Home
Here is how the pieces come together in practice, with round figures. Treat it as a guide only.
Leah and Cameron buy a coastal holiday home for $650,000, with a 20% deposit of $130,000 and a loan of $520,000. Because they plan to rent it out between their own stays, the lender treats it as an investment and applies an investment rate. They expect some short-term rental income, but the lender counts only a small, conservative portion of it, so their approval rests mainly on their salaries. They had made sure they could afford the repayments without relying on heavy bookings.
They use the home themselves for around six weeks a year, keeping it genuinely available for rent the rest of the time, including peak periods. Because it is mainly held to produce income, they can claim deductions, apportioned to exclude their own-use weeks, and their accountant confirms how the current rules apply to them. Had they instead kept it mostly for their own use, the tax outcome could have been very different. The holiday home is partly self-funding through rental, while remaining a place they genuinely enjoy.
Where to Read More
Because the tax treatment of holiday homes changed recently and can be strict, it is worth reading the official guidance. The Australian Taxation Office explains tax rules for holiday homes, including when deductions must be apportioned or may be denied.
Frequently Asked Questions (FAQs)
Is a holiday home loan different from a regular home loan?
In practice, yes. A holiday home you rent out, even part of the time, is usually financed as an investment, with investment interest rates and terms rather than owner-occupier ones. Lenders also treat rental income more cautiously than for a standard investment, and some locations and property types attract additional conditions. It is still a home loan at heart, but the seasonal, mixed-use nature means it is assessed a little differently.
Will my holiday home be treated as an investment?
Most likely, if you intend to rent it out at all. Lenders generally classify a property you rent, even seasonally, as an investment, which means an investment rate and investment lending terms. A holiday home kept purely for your own use, and never rented, may be treated differently, but that is less common. Policies vary between lenders, so the same property can be classified differently depending on where you apply.
Why don't lenders count all my holiday rental income?
Because short-term holiday rental income is seasonal and unpredictable. Unlike a long-term lease with steady rent, holiday letting has busy and quiet periods, gaps between bookings, and variable nightly rates. Lenders allow for that by counting only a portion, sometimes a little more than half, and some will not count projected holiday income at all without a track record. The safer approach is to assume your own income will carry the loan, with rental income as a help rather than the basis.
Can I get a loan for a holiday home in a small coastal town?
Often yes, but it depends on the location and the lender. Some lenders impose restrictions in certain holiday or regional postcodes, where the market is smaller and resale is slower, by lending a lower percentage or requiring a larger deposit. Certain property types, such as serviced apartments or units in managed resort complexes, can be harder to finance. The key is finding a lender comfortable with that specific area and property, and a broker can help with that.
Can I claim tax deductions on a holiday home?
Sometimes, but the rules tightened recently, so this needs care. If your holiday home is genuinely held mainly to produce rental income, you can claim deductions for the costs of earning it, apportioned to exclude the periods you use it privately. However, under updated ATO guidance, a property used mainly for private enjoyment can be treated as a 'leisure facility', which may deny deductions for expenses such as interest and rates altogether. These rules apply to new arrangements, so a holiday home bought now is covered. An accountant should confirm your position before you buy.
How much should I rely on rental income to afford it?
As little as possible, ideally. Lenders themselves count holiday rental income cautiously, and it is wise to follow their lead: treat the rental as helping offset costs rather than as what makes the loan affordable. If you can comfortably manage the repayments and running costs on your own income, with rental as a bonus, you are on solid ground. If the loan only works on optimistic booking assumptions, it is worth reconsidering the budget.
The Bottom Line
A holiday home blends lifestyle and investment, a place you enjoy yourself and rent out to help with the costs. That mixed-use shapes the finance: lenders generally treat it as an investment, assess seasonal rental income cautiously, and can be choosier about location and property type. The rental can offset a good share of the costs, but rarely all of them once your own use is counted.
The tax side depends on how the home is mainly used, and the rules have tightened recently: deductions depend on the property being genuinely held to produce income, and can be limited or denied where private use dominates, with capital gains tax applying on sale. A holiday home works best when you can comfortably afford it on your own income, treat rental as a help rather than a crutch, and use a lender suited to the area. If you would like help working out the finances for a holiday home, we would be glad to walk you through it.