A holiday rental loan is assessed on how much rent a lender will count, not on how much you hope to earn. That one point shapes your borrowing, your structure and your cash flow.
This article is for Camberwell investors who already own a home or have strong equity, and are weighing up a holiday property. It covers the mistakes that most often weaken an application or a strategy.
Do Lenders Count Holiday Rental Income When You Apply for an Investment Loan?
Lenders generally count some rental income, but they discount it. APRA's guidance says prudent policies apply a minimum 20 per cent haircut to expected rent, so no more than 80 per cent is counted.
The haircut allows for periods when the property is empty. Lenders also tend to place less weight on a rental appraisal than on actual rent received. Whether a lender accepts short-stay income, and what evidence it wants, is set by its own credit policy and differs between lenders. Raise this before you choose a property, not after.
A broker can compare how different banks and lenders across Australia treat this income. Our investment loans page explains how we approach that comparison.
Why Borrowing Capacity Comes First
Your borrowing capacity sets the ceiling for any holiday purchase, so check it before you inspect a single property. Banks must assess new borrowers at an interest rate at least 3.0 percentage points above the loan rate. This buffer applies to banks, credit unions and building societies, and APRA confirmed it at its May 2026 update.
Your existing debts also count. Lenders ask about current balances, rates and remaining terms. They also apply a notional repayment to credit card limits, whether or not you use them.
Use our borrowing capacity tool for a starting figure, then have a broker test it against real lender policy.
Interest Only vs Principal and Interest on a Holiday Rental
An interest-only period lowers your repayments for a set time, but it does not increase how much you can borrow. Lenders assess interest-only loans on principal and interest repayments over the remaining term after the interest-only period ends.
The trade-off is that you do not reduce the loan balance during that period. When repayments switch to principal and interest, they rise.
Consider an illustrative example using a rate of 6.75% p.a. Suppose a loan of $600,000 has a 30-year term with five years interest only. Interest-only repayments are about $3,375 a month. After five years, principal and interest repayments over the remaining 25 years are about $4,145 a month. That is a rise of roughly $770 a month.
In this example, the investor keeps the higher figure in mind from day one. They set aside the difference, or plan to review the structure before the switch. The outcome is no payment shock when the interest-only period ends. You can test your own numbers with the interest only calculator.
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Book a chat with a Mortgage Broker at AXTON Finance today.
Equity Release: Using Your Camberwell Home as Deposit
Many Camberwell investors fund a holiday purchase with equity in their home. This can work, but it increases your total debt and the property securing it carries more risk.
The 80 per cent loan to value ratio is the point where lenders mortgage insurance is generally required. It is a lender policy line, not a legal limit on borrowing. Going above it needs approval from both the lender and the insurer, and the premium is paid by you.
Tax matters here too. Under ATO ruling TR 2000/2, interest is deductible based on how the borrowed funds are used. If you use equity to buy the holiday property, the interest on that portion relates to an income-producing purpose. Funds used for personal spending do not. Keep those amounts in separate loan splits so the records stay clear, and ask your accountant how it applies to you. Our page on equity release loans outlines the process.
Negative Gearing Has Changed for New Purchases
A holiday rental bought now is treated differently from one held before 12 May 2026. Properties held at 7:30pm AEST on that date keep full negative gearing. Eligible new builds acquired later also keep it.
For an established property acquired after that time, the rule changes from the 2027-28 income year. Net rental losses will be deductible only against other residential property income, including residential capital gains. Excess losses can be carried forward. Properties acquired between 12 May 2026 and 30 June 2027 can be negatively geared under the current rules until 30 June 2027 only.
Interest on a rental property is generally deductible, but for a holiday home the ATO may deny ownership costs such as interest and rates if the property is not mainly used to earn rent, and apportions them for any private use. What the new rules change is how a rental loss can be used. Only the interest portion of a loan repayment is deductible, not the principal. This also means you should not buy a holiday property relying on a salary offset. Confirm your position with your accountant before you commit.
Capital Gains Tax Changes From 1 July 2027
The 50 per cent CGT discount applies to gains accruing before 1 July 2027 on assets held more than 12 months. From that date, cost base indexation by CPI and a 30 per cent minimum tax rate replace the discount for gains accruing afterwards.
For a property bought now and sold later, the gain is split between the two sets of rules. You can use a market valuation at 1 July 2027 or an ATO apportionment formula. For eligible new build residential properties, investors may elect either the 50 per cent CGT discount or cost base indexation with the 30 per cent minimum tax. Your accountant can model this for your circumstances.
Holiday Rental Costs to Plan Before You Sign
Holding costs sit alongside your loan repayments, and they continue when the property is empty. Council rates, insurance, management fees and repairs are deductible only to the extent the property is used, or held for use, mainly to earn rental income, and they must be apportioned for any personal use. Ask your accountant how this applies to you. The APRA haircut does not cover these costs.
If the property is in a strata complex, body corporate fees are another ongoing cost to factor into your cash flow. Fees and levies differ from one building to the next. Ask for the records before you make an offer.
Building in a cash buffer matters more than a forecast of strong bookings. Consider also an offset account, which reduces the interest charged on your loan while keeping cash available. The trade-off is that offset accounts can carry fees or a higher rate, so compare them with the savings.
If you already hold investments, our guide to expanding your property portfolio covers how a further purchase fits alongside them.
Speak With a Camberwell Broker Before You Make an Offer
Call one of our team or book an appointment at a time that works for you. We will test your borrowing capacity, compare lender policy on short-stay rental income and structure the loan before you commit to a purchase.
Frequently Asked Questions
Will a lender count all my expected holiday rental income?
Generally not. APRA's guidance expects lenders to count no more than 80 per cent of expected rent. Each lender sets its own rules on the evidence it accepts for short-stay income.
Does an interest only loan increase how much I can borrow?
No. Lenders assess interest-only loans on principal and interest repayments over the remaining term, so borrowing capacity does not rise. Your balance also stays the same during the interest-only period.
Can I use equity in my home to buy a holiday rental?
Often yes, subject to lender approval. Borrowing above 80 per cent loan to value ratio generally needs lenders mortgage insurance. Keep borrowed funds for the purchase in separate splits and ask your accountant about interest deductibility.
Has negative gearing changed for new investment purchases?
Yes. For established properties acquired after 12 May 2026, net rental losses are deductible only against residential property income from the 2027-28 income year. Speak with your accountant about your situation.
