The Pros and Cons of Buying a Holiday Home

Buying a holiday home isn't like buying the place you live in.

The loan structure changes, lenders assess your income differently, and the property itself gets categorised in a way that affects your interest rate and deposit requirements. If you're considering a weekender along the Gippsland Lakes or a coastal retreat within driving distance of Bairnsdale, understanding how the loan works will help you set realistic expectations before you start looking.

How Lenders Treat a Holiday Home Loan

A holiday home loan is treated as an investment loan by most lenders, even if you never plan to rent it out. That means you'll typically pay a slightly higher interest rate than you would on an owner occupied home loan, and you may need a larger deposit depending on the property's location and your overall borrowing position. Some lenders will consider it owner-occupied if you can show genuine intent to use it as a second residence and don't claim rental income, but that's not standard across the board.

Consider a buyer who already owns a home in Bairnsdale and wants to purchase a property near Lakes Entrance to use on weekends and school holidays. They have $80,000 saved and expect the property to sit vacant most of the year. The lender classifies the loan as investment because it's not their primary residence, even though no tenant will occupy it. The buyer pays a variable interest rate that's around 0.15% to 0.25% higher than the equivalent owner-occupied rate, and the lender requires an 80% loan to value ratio to avoid Lenders Mortgage Insurance. The buyer adjusts their budget slightly to account for the rate difference and moves forward with a clear understanding of what the repayments will look like.

The Pros of Purchasing a Holiday Home

Owning a second property gives you a place to retreat without booking accommodation or competing with tourist crowds. You can personalise it, store your own belongings there, and use it whenever you like. If the property is in a location with strong seasonal demand, such as Paynesville or Metung, you also have the option to rent it out short-term during peak periods to offset some of the holding costs.

From a lending perspective, if you do decide to rent the property occasionally, some lenders will allow you to declare that rental income when calculating your borrowing capacity for future loans. The income is typically shaded by around 20% to account for vacancy and maintenance costs, but it can still improve your overall financial position. You also build equity in a second asset over time, which may support further borrowing down the line if your circumstances change.

The Cons of Purchasing a Holiday Home

Holding costs add up when a property sits vacant. You'll still pay council rates, water charges, insurance, and maintenance whether you're using the place or not. If the property is located in a bushfire-prone area or near water, insurance premiums can be higher than you'd expect. Unlike an investment property that's tenanted year-round, there's no rental income to cover these expenses unless you actively manage short-term bookings.

Your borrowing capacity also takes a hit when you add a second mortgage. Lenders assess your ability to service both loans simultaneously, which can limit how much you're able to borrow in future if you want to upgrade your main residence or pursue another investment. If you're planning to buy a holiday home before you've finished paying off your primary home, it's worth running the numbers to see how it affects your long-term options.

Structuring the Loan Around How You'll Use the Property

If you're certain the property will remain personal use only, a variable rate with an offset account gives you flexibility to park savings and reduce the interest you're charged. If you're planning to rent it out for part of the year, splitting the loan between fixed and variable can give you rate certainty on a portion while keeping some funds accessible in offset for the variable component.

In our experience, buyers who intend to use the property themselves most of the time but want the option to rent it occasionally benefit from keeping the loan structure adaptable. A portable loan feature can also be useful if you decide later to sell the holiday home and purchase a different property without reapplying from scratch.

What Deposit You'll Need and How LMI Applies

Most lenders want to see at least a 20% deposit for a second property, particularly if it's classified as investment. If you're borrowing above 80% of the property's value, you'll likely pay Lenders Mortgage Insurance, and the premium can be higher for investment loans compared to owner-occupied lending. Some lenders cap their loan to value ratio at 90% for second properties, so if your deposit is smaller, your options narrow.

If you have equity in your Bairnsdale home, you may be able to use that equity as part of your deposit rather than drawing down all your cash savings. That approach can keep your liquidity intact for other expenses, but it also increases the total amount you're borrowing across both properties, so serviceability becomes even more important.

Rental Income and Tax Considerations

If you're planning to rent the property out, even just during summer or long weekends, you'll need to declare that income and claim relevant deductions such as interest, rates, and maintenance. The Australian Taxation Office has specific rules around how you apportion expenses if the property is used for both personal and rental purposes, so it's worth speaking to an accountant before you commit to a loan structure that assumes rental income will cover costs.

Lenders will also ask for evidence of rental potential if you're relying on that income to qualify for the loan. A rental appraisal from a local agent in the area where you're buying can support your application, but don't expect lenders to accept your own estimate without third-party verification.

When a Holiday Home Loan Makes Sense

A second property works when you've got a stable income, manageable debt on your primary residence, and enough surplus to cover the holding costs without relying on rental income. It also helps if the property is in a location you'll genuinely use. A weekender that's three hours away might get visited once a month. A property that's six hours away might sit empty for months at a time, and the costs start to feel harder to justify.

If you're buying near Bairnsdale or within the East Gippsland region, you're also buying into a market with strong local appeal and steady holiday demand in certain pockets. That can support long-term capital growth, but it won't necessarily deliver the same returns as a property in a major metro area. Be realistic about what you're buying the property for, whether that's lifestyle, income, or a mix of both, and structure the loan accordingly.

Call one of our team or book an appointment at a time that works for you. We'll help you compare rates, review loan products, and structure a home loan application that fits how you plan to use the property.

Frequently Asked Questions