Lenders treat holiday rental properties differently from standard residential investment because income is less predictable and vacancy rates are higher.
If you're an Ormond resident looking to buy a holiday rental in a coastal or regional location, your loan structure needs to account for seasonal occupancy, platform fees, and the regulatory changes that take effect from July 2027. The decision between interest-only and principal-and-interest repayments, and how you manage the deposit and borrowing capacity assessment, will determine whether the property supports itself or requires ongoing top-ups from your salary.
How Lenders Assess Holiday Rental Income
Most lenders will discount your estimated holiday rental income by 20 to 30 per cent when calculating serviceability. They assume higher vacancy than a long-term lease and factor in cleaning, management and platform commission. If you project annual gross rental income of $40,000 from a coastal property, the lender may assess you on $28,000 to $32,000.
Some lenders will accept a rental assessment based on an independent valuer's opinion if the property is already operating as a short-term rental. Others require a minimum 12-month operating history before they recognise any income at all. For a property you're purchasing off-market or from an owner who used it privately, you'll typically need to service the loan without relying on rental income in the application.
Deposit Requirements and Loan to Value Ratio
Holiday rental properties are commonly capped at 80 per cent loan to value ratio, meaning you need a 20 per cent deposit plus costs. Some lenders will go to 90 per cent LVR if you pay Lenders Mortgage Insurance, but the premium is higher for investment purposes and short-term rental use may trigger an additional loading.
Consider a scenario where you're buying a two-bedroom unit in Lorne at $650,000. A 20 per cent deposit is $130,000. Stamp duty in Victoria on that purchase is approximately $34,000, and you should allow another $3,000 to $5,000 for legal fees, building and pest inspections, and loan establishment costs. Total upfront requirement sits around $167,000 to $169,000 before any furniture or styling for the rental.
If you own your Ormond home and have equity available, you can use that equity to fund part or all of the deposit and costs, leaving your savings intact. The lender will assess your ability to service both your existing home loan and the new investment loan together, applying the serviceability buffer to both.
Interest-Only Versus Principal and Interest Repayments
Interest-only repayments keep your monthly outgoings lower, which can help manage cashflow when occupancy is seasonal. Most lenders offer interest-only terms of one to five years on investment loans, after which the loan reverts to principal and interest unless you apply to extend.
On a $520,000 loan at a variable rate around 6.3 per cent, interest-only repayments would be approximately $2,730 per month. Principal and interest repayments over 30 years would be approximately $3,210 per month. The $480 difference matters when your rental income drops during winter or between school holiday peaks.
Interest-only does not reduce the loan balance, so you're not building equity through repayments. The strategy works when you expect capital growth to outpace the interest cost and you want to direct surplus cashflow to other investments or offset your owner-occupied loan. If the property consistently generates surplus income after expenses, switching to principal and interest accelerates equity build-up and reduces total interest paid over the life of the loan.
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How the Negative Gearing Changes Affect Holiday Rentals
Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, rental losses on residential dwellings purchased after 7:30pm AEST on 12 May 2026 are quarantined from 1 July 2027. You can only offset those losses against other residential rental income or carry them forward to offset future rental income or capital gains. You cannot offset them against your salary.
Holiday rentals fall within the definition of residential dwellings, and they are not exempt unless the property qualifies as an eligible new build. A knock-down rebuild that does not increase the number of dwellings does not qualify. A new townhouse or apartment constructed on previously vacant land does qualify, and losses from that property can still be offset against salary under the existing rules even after July 2027.
If you're buying an established holiday rental, the change means any net loss after deducting interest, body corporate fees, council rates, management fees, repairs and depreciation will be quarantined. If you also own a long-term rental property that generates a profit, you can offset the holiday rental loss against that profit. If you have no other rental income, the loss is carried forward and used when you sell the property or when the holiday rental becomes profitable.
This changes the cashflow equation. Instead of a tax refund partially offsetting a monthly shortfall, you carry the full shortfall until disposal or profit.
Variable Rate or Fixed Rate for Investment Loans
Variable rates on investment loans currently sit between 6.0 and 6.5 per cent depending on the lender and your loan to value ratio. Fixed rates for investment purposes are typically 0.1 to 0.3 percentage points higher than equivalent owner-occupied fixed rates and are available for terms of one to five years.
A variable rate gives you flexibility to make unlimited extra repayments and access offset or redraw facilities. Most lenders allow you to split your loan, fixing a portion for rate certainty while keeping the rest variable. A 50/50 split on a $520,000 loan would fix $260,000 at the current rate and leave $260,000 variable.
If you fix the rate and occupancy turns out lower than forecast, you're still committed to the fixed repayment. If you need to sell before the fixed term ends, break costs can apply. For holiday rentals where income is harder to predict, a variable rate or a smaller fixed portion offers more flexibility to adjust repayments or sell without penalty.
Body Corporate, Management Fees and Claimable Expenses
Holiday rentals incur costs that reduce your net return but are claimable against rental income. Body corporate fees for a unit in a resort-style complex can range from $3,000 to $8,000 per year. Property management for short-term rentals typically costs 15 to 25 per cent of gross rental income, higher than the 6 to 8 per cent for long-term residential management.
You can also claim interest on the investment loan, council rates, water rates, insurance, repairs and maintenance, cleaning between guests, linen and consumables, advertising on booking platforms, and depreciation on the building and fixtures. These deductions reduce your taxable rental income and, where they exceed your rental income, create a loss that can be carried forward or offset as described earlier.
Keep records of all expenses and separate them from any personal use. If you use the property yourself for two weeks a year, you need to apportion expenses and only claim the portion related to rental periods.
Structuring the Loan Application
When you apply for an investment loan for a holiday rental, the lender will assess your current income, existing debts, living expenses, and the projected rental income from the new property. They apply the serviceability buffer, currently three percentage points above the product rate, and the debt-to-income cap, which limits new investor loans at six times income or greater to 20 per cent of an authorised deposit-taking institution's investor portfolio.
If your combined owner-occupied and investment borrowing pushes your debt-to-income ratio above six, some lenders will decline the application or require a larger deposit to bring the ratio down. Others have room within their 20 per cent allocation and will proceed. This is where working with a broker who has access to investment loan options from banks and lenders across Australia makes a difference. We can identify which lenders are still lending in that higher DTI band and which have tightened.
You also need to demonstrate genuine savings or equity for the deposit. Gifted funds are acceptable at some lenders with a signed declaration, but most require at least part of the deposit to come from your own verified savings or existing property equity.
Refinancing an Existing Investment Loan
If you already own a holiday rental and your current loan rate sits above 6.5 per cent, refinancing can reduce your repayments and improve cashflow. Lenders reassess the property and your income at the time of refinance, so if occupancy has been strong and you have evidence of consistent bookings, some lenders will now recognise a portion of that income where they might not have at purchase.
Refinancing also allows you to release equity if the property has increased in value, though this increases your loan balance and your repayments. The decision to refinance should be based on a comparison of your current rate, the rate you can access now, any discharge or establishment fees, and whether switching lenders gives you access to better offset or redraw features.
Most fixed rates established in late 2021 and early 2022 have now expired. If your loan has reverted to a variable rate above current market offers, you're likely paying more than necessary. An investment loan refinance can also consolidate other debts or adjust the interest-only period if your circumstances have changed.
Capital Gains Tax and the Thirty Per Cent Minimum Rate
From 1 July 2027, capital gains accrued after that date on residential investment properties other than eligible new builds will no longer receive the 50 per cent discount. Instead, the cost base will be indexed to inflation and a minimum 30 per cent tax rate applies to real capital gains.
For a holiday rental purchased now, any gain accrued before 1 July 2027 is calculated under current rules. Gains accrued after that date use the new rules. If you hold the property for ten years and sell in 2036, you'll need to apportion the gain between the period before and after July 2027.
Eligible new build residential properties allow you to elect between the 50 per cent discount and the indexed cost base with 30 per cent minimum rate, giving you the option to choose whichever results in a lower tax liability. For established dwellings, you have no choice.
This makes the hold period more important. Shorter holds under the new regime may see a higher proportion of the gain taxed under the less favourable rules. The change also affects borrowing strategy. If you plan to sell in the medium term to fund another purchase, the after-tax return will be lower than under current settings, which may influence whether you fix the loan or keep it flexible.
Ormond Equity and Portfolio Growth
Ormond's median house price sits above $1.5 million, and many residents have accumulated significant equity in their principal place of residence. Using that equity to fund a holiday rental deposit avoids the need to sell investments or draw down savings, and the interest on the portion of the loan used to acquire the investment property remains deductible.
The structure commonly used is a split loan. Your existing home loan remains in place, and a new split or separate loan is established against the Ormond property to fund the investment purchase. The new split is interest-only, and repayments and interest are claimed as a deduction against the rental income from the holiday property. Your existing home loan, if used for owner-occupied purposes, does not generate a deduction but can be paid down faster using offset funds or surplus cashflow.
Lenders will assess the combined loan-to-value ratio across both the Ormond property and the new holiday rental. If your total borrowing across both securities exceeds 80 per cent of the combined value, Lenders Mortgage Insurance may apply, even if each individual property sits below 80 per cent LVR when considered in isolation.
When to Lock in the Rate
Rate movements are difficult to predict, but locking in a portion of your investment loan provides certainty over repayments for the fixed term. This can be useful during the first few years of ownership when you're still learning the occupancy pattern and building a booking history.
If you believe rates will fall, keeping the loan variable allows you to benefit from cuts without waiting for a fixed term to expire. If you prioritise certainty and want to know exactly what your repayments will be for the next two or three years, a fixed rate removes that variable.
Most lenders allow you to fix between 10 and 100 per cent of the loan balance. A partial fix, such as 40 or 50 per cent, gives you a base level of certainty while leaving enough variable to make extra repayments or access redraw if occupancy exceeds expectations and you want to reduce the balance faster.
Call one of our team or book an appointment at a time that works for you. We'll walk through your current position, the equity available in your Ormond home, and the investment loan products suited to holiday rental properties. Whether you're buying your first rental or adding to an existing portfolio, the structure you choose now will determine how the property performs under the new tax and regulatory settings from July 2027.
Frequently Asked Questions
What deposit do I need for a holiday rental property?
Most lenders require a 20 per cent deposit for a holiday rental property to avoid Lenders Mortgage Insurance, though some will lend up to 90 per cent with LMI. You also need to budget for stamp duty and settlement costs, which can add another 6 to 8 per cent of the purchase price depending on the property value and state.
Can I still negatively gear a holiday rental property after July 2027?
Rental losses on holiday rental properties purchased after 7:30pm AEST on 12 May 2026 will be quarantined from 1 July 2027. You can offset those losses against other residential rental income or carry them forward, but you cannot offset them against salary unless the property qualifies as an eligible new build that increases dwelling numbers.
How do lenders assess rental income from a short-term rental?
Lenders typically discount projected holiday rental income by 20 to 30 per cent to account for vacancy, platform fees and seasonal occupancy. Some lenders require a 12-month operating history before recognising any income, while others will accept a rental assessment from an independent valuer if the property is already trading.
Should I choose interest-only or principal and interest repayments?
Interest-only repayments are lower and help manage cashflow when occupancy is seasonal, but they do not reduce the loan balance. Principal and interest repayments build equity faster and reduce total interest paid, making them a suitable option if the property generates consistent surplus income after expenses.
Can I use equity in my Ormond home to buy a holiday rental property?
Yes. If you have sufficient equity in your Ormond home, you can establish a split loan or separate facility against that property to fund the deposit and purchase costs for the holiday rental. The lender will assess your ability to service both loans together, and the interest on the portion used to acquire the investment property is deductible.
