A holiday home loan can be structured as either owner occupied or investment depending on your intended use.
Many Sandringham residents looking at coastal properties in places like Portsea, Sorrento, or regional Victoria assume they'll need an investment loan because the property will earn rental income. But if you plan to use the property yourself for more than a few weeks a year and only rent it out occasionally, lenders may still classify it as owner occupied. That distinction affects your interest rate, your deposit requirements, and which loan features you can access.
How lenders classify a holiday home for loan purposes
If the property will be your primary residence for part of the year or you intend to use it regularly for personal holidays, it's typically treated as owner occupied. If you're buying purely for rental income and won't be using it yourself, it's classified as investment.
Consider a Sandringham family purchasing a weekender in Rye. They plan to use the property during summer holidays and rent it out short-term through the winter months. Because their primary intention is personal use, the loan can be structured as owner occupied, which means access to lower interest rates and a smaller deposit requirement compared to an investment loan. The broker structures the loan with an offset account linked to their everyday banking, so rental income can sit in the offset and reduce interest costs during the months they're not using the property.
What deposit and equity you'll need for a second property
Most lenders require at least a 10% deposit for an owner occupied holiday home, though 20% avoids Lenders Mortgage Insurance and gives you access to better rate discounts.
If you already own a home in Sandringham and have built equity through repayments or capital growth, you can often use that equity as part or all of your deposit for the holiday home. The lender will assess your borrowing capacity based on both properties, factoring in your current home loan repayments and the new loan you're applying for. If the holiday home will generate rental income, some lenders will include a portion of that income in their assessment, typically around 80% of the expected rent to account for vacancy periods and seasonal fluctuations.
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Variable or fixed rate for a property you'll rent out seasonally
A variable rate gives you flexibility to make extra repayments during high rental periods without penalty, while a fixed rate locks in your repayment amount regardless of rate movements.
For a holiday home that earns seasonal rental income, a split loan can work well. You fix a portion of the loan to create repayment certainty during the off-season when rental income drops, and keep the remainder on a variable rate so you can offset rental earnings and make lump sum repayments when bookings are strong. That structure gives you both stability and flexibility without committing entirely to one rate type.
Offset accounts and rental income management
An offset account linked to your holiday home loan lets you park rental income and reduce the interest charged on your loan balance.
If your holiday property earns $15,000 over the summer rental period, keeping that amount in a linked offset reduces the balance on which interest is calculated. Instead of paying interest on the full loan amount, you're only charged on the balance minus the offset funds. That can make a tangible difference over the course of a year, particularly if the property has strong seasonal demand and you're holding rental income for several months before putting it toward other expenses.
How rental income affects your borrowing capacity
Lenders will usually count 80% of your expected rental income when calculating how much you can borrow for a holiday home.
That buffer accounts for periods when the property sits vacant or maintenance costs eat into your rental return. If you're buying a property in a coastal area with strong holiday demand, you may have rental appraisals or booking data from similar properties to support your income estimate. The lender will want to see evidence that your rental assumption is realistic, particularly if that income is being used to justify the loan amount you're applying for.
Interest only versus principal and interest for a dual-use property
Interest only repayments can reduce your monthly outgoings during the ownership period, but you won't build equity unless the property increases in value.
If your intention is to hold the holiday home long-term and eventually use it as a retirement property or pass it on to family, principal and interest repayments make sense. You're paying down the loan balance each month and building equity steadily. If you're treating the property more as a short to medium-term investment and plan to sell within a few years, interest only can keep your cash flow healthier in the meantime, provided you're comfortable with the loan balance staying the same.
Tax treatment and how it influences your loan structure
If your holiday home is classified as an investment property for tax purposes, you can claim loan interest as a deduction against your rental income.
That doesn't change the loan product itself, but it does influence how you structure your repayments and whether you prioritise paying down your owner occupied home loan or your holiday property loan first. Speaking with an accountant before finalising your loan structure ensures you're not creating unnecessary tax complexity or missing deductions you're entitled to claim.
Call one of our team or book an appointment at a time that works for you. We'll compare rates and loan features across a range of lenders, and structure your holiday home loan to match how you'll actually use the property.
Frequently Asked Questions
Can I use equity from my Sandringham home to buy a holiday property?
Yes, if you've built equity in your current home through repayments or capital growth, you can often use that equity as part or all of your deposit for a holiday home. The lender will assess your borrowing capacity based on both properties and your ability to service both loans.
Is a holiday home loan classified as owner occupied or investment?
It depends on your intended use. If you'll be using the property regularly for personal holidays, it's typically classified as owner occupied. If you're buying purely for rental income and won't use it yourself, it's treated as investment, which affects your interest rate and deposit requirements.
How much rental income will a lender count toward my borrowing capacity?
Most lenders will include around 80% of your expected rental income when calculating borrowing capacity. This buffer accounts for vacancy periods, seasonal fluctuations, and ongoing maintenance costs.
Should I choose a variable or fixed rate for a holiday home loan?
A variable rate offers flexibility to make extra repayments from rental income without penalty, while a fixed rate provides repayment certainty. A split loan can give you both stability during low rental periods and flexibility to offset income when bookings are strong.
What deposit do I need for a holiday home purchase?
Most lenders require at least 10% for an owner occupied holiday home, though a 20% deposit avoids Lenders Mortgage Insurance and typically gives you access to lower interest rates and better loan features.
