Common Mistakes When Buying a Holiday Home

A holiday home loan works differently from the one you used to buy your main residence.

Most buyers assume the application process will mirror their first purchase. It won't. Lenders treat a second property as higher risk, which affects your borrowing capacity, the interest rate you'll pay, and the deposit you'll need. Understanding these differences before you start looking saves time and eliminates surprises at application.

Your Borrowing Capacity Shrinks With a Second Property

Lenders assess your capacity to service two mortgages simultaneously. Your existing home loan repayments reduce the amount you can borrow for a holiday home, even if that first loan has a small balance. Lenders also apply a rental income haircut if you plan to lease the property short-term. Rather than counting 100% of projected rental income, they'll typically assess 70% to 80% to account for vacancy periods and maintenance costs. In our experience, buyers who've built strong equity in their Broadbeach home often find their borrowing capacity for a second property is 30% to 40% lower than expected, particularly if they're still servicing a mortgage on their primary residence.

Consider a buyer who owns a unit near Kurrawa Beach with $400,000 remaining on the loan. They want to purchase a holiday apartment in northern New South Wales. Even with a household income of $180,000, their capacity to borrow for the second property might sit around $350,000 to $400,000 once the lender accounts for existing debt, living expenses, and the serviceability buffer. If they planned to rent the holiday home for part of the year, the lender would discount that projected income significantly. The outcome is a smaller loan than anticipated, which means either a larger deposit or a different property.

Investment Loan Rates Apply Even If You Use the Property Yourself

If you intend to use the holiday home personally and also rent it out, even occasionally, most lenders will classify the loan as an investment loan. Investment loan rates sit higher than owner-occupied rates, typically by 0.20% to 0.50% depending on the lender and your loan-to-value ratio. This classification also affects the features available to you. Some home loan products that offer offset accounts or rate discounts for owner-occupied borrowers don't extend the same benefits to investment loans.

The tax treatment adds another layer. If you rent the property, you can claim interest as a deduction, but only in proportion to the time it's tenanted. If you use it yourself for half the year and rent it for the other half, you can only claim half the interest. The Australian Taxation Office monitors this closely, and lenders won't adjust your loan structure based on tax strategy. They price the loan according to its purpose at the time of application.

Deposit Requirements Are Higher for a Second Property

Lenders typically require a minimum 10% deposit for a holiday home, and many will ask for 20% to avoid Lenders Mortgage Insurance. LMI premiums on second properties cost more than on a primary residence due to the additional risk. Some lenders won't offer LMI on investment or holiday home loans at all, which means a 20% deposit becomes mandatory rather than optional.

Using equity from your existing property can cover the deposit, but this requires a valuation and increases your overall debt. If your current home is valued at $1,200,000 with a $400,000 loan, you have $800,000 in equity. Lenders will typically let you borrow up to 80% of the property's value, which means you could access around $560,000 in usable equity after accounting for the existing loan. That's enough to fund a deposit and cover purchase costs, but it also means your total debt increases and your serviceability is reassessed across both loans.

For Broadbeach buyers with strong equity in their primary residence, this approach works well. For those still building equity or carrying higher debt levels, saving a cash deposit might be the only option. A loan health check before you start looking will show you where you stand.

Serviceability Buffers Hit Harder on a Second Loan

Lenders apply a serviceability buffer when assessing your ability to repay a loan. They test whether you could still afford repayments if interest rates rose by 3%, as required under current lending standards. On a second property, this buffer compounds with your existing commitments. If your primary residence loan is already pushing your serviceability limits, adding a second loan can make approval difficult even if the deposit is adequate.

Rental income helps, but lenders discount it as noted earlier. They also assess your capacity to service both loans if the holiday home sits vacant. In a scenario like this, a buyer with $15,000 per month in gross income, $3,500 in existing loan repayments, and $4,000 in living expenses might only have $3,000 to $4,000 per month available for a second loan after the buffer is applied. At current variable rates, that serviceability window supports a loan of around $450,000 to $500,000, depending on the lender and loan term.

Not All Lenders Offer Holiday Home Loans

Some lenders distinguish between investment properties and holiday homes in their policy. A property you intend to use personally for part of the year might not meet their definition of an investment loan, but it also doesn't qualify as owner-occupied. This creates a grey area that limits your options. Other lenders treat any property that isn't your primary residence as an investment loan regardless of how you use it.

Working with a broker who understands how different lenders assess second properties gives you access to a wider panel. Some lenders offer better rates or features for holiday homes, while others have stricter serviceability criteria. Knowing which lender to approach before you apply improves your chances of approval and ensures you're not locked into a loan that doesn't suit your situation. We regularly see this make the difference between approval and decline, particularly for buyers with complex income structures or existing debt.

Capital Gains Tax Applies When You Sell

Your primary residence is exempt from capital gains tax when you sell. A holiday home is not. If you purchase a property, use it as a holiday home, and sell it later at a profit, you'll pay CGT on the gain. The tax is calculated on the difference between your purchase price (plus eligible costs like stamp duty and improvements) and your sale price. If you've owned the property for more than 12 months, you'll receive a 50% discount on the taxable gain, but the liability still applies.

This changes the equation for buyers who view a holiday home as both a lifestyle asset and a long-term investment. Unlike investment loans where the primary focus is rental yield and growth, a holiday home often delivers lower rental returns due to personal use. The CGT liability on sale reduces your net return further. Understanding this upfront helps you decide whether the property makes sense financially or whether you're buying purely for lifestyle.

Stamp Duty Doesn't Offer Concessions for Second Properties

First home buyers in Queensland can access stamp duty concessions or exemptions depending on the property price. Those concessions don't apply to a second property. You'll pay full stamp duty based on the purchase price, which in Queensland ranges from 1% to 5.75% depending on the value. On a $700,000 holiday home, stamp duty would be approximately $23,000. Add legal fees, building and pest inspections, and lender costs, and your upfront expenses could reach $30,000 or more.

Broadbeach buyers familiar with the Gold Coast market know that property values in popular holiday locations can climb quickly. A unit near the beach that was affordable five years ago might now sit above the threshold where LMI or higher deposits apply. Budgeting for the full cost of purchase, including stamp duty and settlement fees, before you commit to a price range keeps your borrowing realistic.

If you're considering a holiday home and want to understand your borrowing capacity, serviceability, and the loan structure that suits your situation, call one of our team or book an appointment at a time that works for you.

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