Lenders treat holiday home loans differently depending on how you intend to use the property
A holiday home loan sits between owner-occupied and investment lending in the eyes of most lenders. If you plan to use the property exclusively for personal holidays and family use, many lenders will classify it as an owner-occupied loan, which typically carries a lower interest rate than investment lending. If you intend to rent the property out, even occasionally, it's classified as an investment loan and assessed accordingly. The deposit requirement, interest rate, and serviceability calculation all hinge on this distinction.
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Consider an orthodontist purchasing a coastal property in Dunsborough. The property will be used for family holidays during school breaks and long weekends, with no rental income planned. The lender classifies the loan as owner-occupied, applies the owner-occupied rate, and assesses serviceability without requiring rental income projections. The borrower needs a 10% deposit plus costs. In contrast, if the same orthodontist plans to rent the property through a holiday letting agent for part of the year, the lender treats it as an investment loan, applies the investment rate, and requires evidence of rental income or a rental appraisal to support serviceability.
Deposit and equity requirements depend on whether you already own property
If this is your second property and you already own your principal residence, most lenders allow you to access equity in your existing home to fund the deposit and costs for the holiday property. Equity release works by refinancing your existing home loan or taking out a separate loan secured against your current property. The combined loan-to-value ratio across both properties typically needs to stay below 80% to avoid LMI, though some lenders offer higher LVRs for medical and dental professionals, including orthodontists, under LMI waiver arrangements.
If you're purchasing the holiday home without using equity, the deposit requirement is the same as for any other property purchase. At an 80% LVR, you'll need a 10% deposit plus costs. At 90% LVR, you'll need a 10% deposit plus LMI. Genuine savings, term deposits, and offset account balances are all acceptable sources.
Serviceability is assessed on your existing commitments plus the new loan repayment
Lenders assess your ability to service the holiday home loan by adding the new repayment to your existing financial commitments and measuring the total against your income. If the property will generate rental income, lenders typically apply a shading rate, allowing 70% to 80% of the projected rental income to be included in the serviceability calculation. If the property is for personal use only, no rental income is included, and the full loan repayment is assessed as an expense.
The borrowing capacity calculation also includes the serviceability buffer. Lenders must assess your ability to repay the loan at an interest rate at least 3.0 percentage points above the product rate. For orthodontists with variable income from practice ownership or specialist consulting, lenders may average income over two financial years based on tax returns and financial statements. If you're employed, recent payslips and a letter of employment are typically sufficient.
Split rate structures can reduce repayment volatility on a second property
A split loan structure allows you to fix a portion of the holiday home loan and leave the remainder on a variable rate. This approach provides certainty over part of the repayment while retaining flexibility on the variable portion, including access to an offset account and the ability to make extra repayments without penalty. Fixed rates are available for terms ranging from one to five years, depending on the lender.
Split structures are particularly relevant for orthodontists who want to manage repayment risk across multiple properties. If you already have a variable rate loan on your principal residence, fixing part of the holiday home loan provides some protection against rate rises without locking in the entire portfolio. The offset account linked to the variable portion can be used to park surplus income from your practice, reducing the interest charged on that part of the loan.
Holiday homes in regional areas may face additional lender scrutiny
Some lenders apply location-based lending restrictions to regional or remote areas, particularly where property values are volatile or the local economy is reliant on a single industry. Coastal holiday destinations such as Noosa, Byron Bay hinterland, the Mornington Peninsula, and Margaret River are generally well supported by major lenders. More remote locations, or towns with declining populations, may be subject to reduced LVRs or excluded from certain loan products altogether.
Lenders maintain postcode-based risk matrices that determine the maximum LVR and whether they will lend in a given area. Before committing to a purchase, confirm with your broker that the property is within an acceptable lending zone and that the LVR you require is available. Properties in small coastal towns with seasonal economies may require a larger deposit or a slightly higher interest rate compared to metropolitan or established regional areas.
Rental income must be declared if you intend to lease the property at any point
If you plan to rent the property out, even for part of the year, you must declare this intention to the lender at the time of application. The loan will be structured as an investment loan, and the lender will require a rental appraisal or evidence of comparable rental properties in the area. Rental income is shaded, meaning only a portion is counted toward serviceability, typically 70% to 80% depending on the lender's policy.
Rental income from a holiday property is also assessable income for tax purposes and must be declared in your annual return. Interest on the loan, council rates, insurance, property management fees, and maintenance costs are all deductible. Depreciation schedules for fixtures and fittings may also be available depending on the age and condition of the property. Negative gearing rules apply in the usual way for properties held prior to the changes introduced in mid-2026, and rental losses can be offset against other income, including orthodontic practice income.
Offset accounts work differently when the property generates rental income
If the loan is classified as an investment loan, any interest saved through an offset account reduces the amount of interest you can claim as a tax deduction. Some orthodontists prefer to link the offset account to their owner-occupied home loan and leave the investment loan balance untouched, maximising the deductible interest on the investment property. Others prioritise reducing total interest across all loans and accept the reduced deduction.
If the property is for personal use only and the loan is classified as owner-occupied, the offset account functions in the same way as it would for your primary residence. Funds in the offset account reduce the interest charged on the loan, and there are no tax implications because the interest is not deductible in the first place.
Pre-approval allows you to act quickly in competitive holiday markets
Holiday property markets in popular coastal and regional areas can move quickly, particularly in the summer months or during long weekends. Getting loan pre-approval before you begin property inspections gives you a clear understanding of your budget and allows you to make an offer with confidence. Pre-approval typically lasts 90 days and is subject to a satisfactory valuation and final credit assessment.
Pre-approval also allows your broker to identify any potential issues with serviceability, deposit structure, or property location before you commit to a purchase. For orthodontists with multiple income sources, complex trust structures, or existing investment properties, pre-approval provides time to prepare documentation and structure the loan in the most effective way.
Call one of our team or book an appointment at a time that works for you. We'll review your current position, confirm your borrowing capacity, and structure the loan to suit how you plan to use the property.
Frequently Asked Questions
Can I use equity from my current home to buy a holiday property?
Yes, if you already own your principal residence, most lenders allow you to access equity by refinancing or taking out a separate loan secured against your current property. The combined loan-to-value ratio across both properties typically needs to stay below 80% to avoid LMI, though higher LVRs may be available for orthodontists under certain lender policies.
Does a holiday home loan get classified as owner-occupied or investment?
It depends on how you intend to use the property. If you plan to use it exclusively for personal holidays with no rental income, many lenders will classify it as owner-occupied. If you intend to rent it out, even occasionally, it will be classified as an investment loan with a higher interest rate and different serviceability requirements.
Will lenders lend in regional holiday destinations?
Most major lenders support established coastal holiday destinations such as Noosa, Byron Bay hinterland, the Mornington Peninsula, and Margaret River. More remote locations or towns with declining populations may be subject to reduced LVRs or lending restrictions. Confirm with your broker that the property is within an acceptable lending zone before committing to a purchase.
Should I fix or split the interest rate on a holiday home loan?
A split loan structure allows you to fix a portion of the loan for repayment certainty while keeping the remainder on a variable rate with offset account access. This approach is particularly useful for orthodontists managing repayment risk across multiple properties, as it provides protection against rate rises without locking in the entire loan.
Can I claim tax deductions if the holiday home is for personal use only?
No, if the property is used exclusively for personal holidays and generates no rental income, the loan interest and other property expenses are not tax deductible. If you rent the property out, even for part of the year, the loan must be structured as an investment loan and expenses become deductible in proportion to the rental use.
