Why Should Couples Separating Consider a Holiday Home?

A holiday home can give you income, independence, and a place that's entirely yours after separation.

Purchasing a holiday property isn't always about weekend getaways. For couples separating, it can be a pathway to building equity outside the former family home, generating rental income during peak seasons, and establishing financial independence without the emotional weight of your previous shared property. Whether you're buying out your former partner or starting from scratch, a holiday home offers flexibility that an owner-occupied property sometimes can't.

Can You Borrow for a Holiday Home During Separation?

You can borrow for a holiday home during or after separation, but lenders treat it as an investment property even if you plan to use it yourself. That means higher interest rates compared to owner-occupied loans, typically between 0.3% and 0.6% above the equivalent variable rate. Lenders assess your borrowing capacity based on your individual income, existing debts, and any ongoing financial commitments from the separation, including child support or spousal maintenance. If you're in the middle of property settlement discussions, some lenders will want confirmation that any liability on the former family home has been formally resolved or that you've been released from the mortgage before they'll approve a new loan.

Consider someone earning $95,000 annually with a car loan and child support obligations totalling $1,800 per month. They've been released from the mortgage on the former family home and want to purchase a holiday unit on the NSW Central Coast. The lender assesses rental income at 80% of market rent to allow for vacancy periods, then applies the serviceability buffer. Even with a deposit of 15%, the borrowing capacity might sit around $480,000 to $520,000 depending on the lender's policy. That's often enough for a two-bedroom unit in a regional area with strong holiday rental demand, but it requires accurate documentation of both income and expenses.

What Deposit Do You Need for a Holiday Home?

Most lenders require a minimum 10% deposit for a holiday home purchase, though some will lend at 10% only if you're an existing customer with a strong repayment history. A 20% deposit avoids lenders mortgage insurance and gives you access to better interest rates. If you're using equity from another property as your deposit, the lender will assess the combined loan-to-value ratio across both properties. That can work in your favour if you've recently refinanced or paid down debt on an existing home, as it increases your usable equity without needing cash savings.

Lenders mortgage insurance applies on any loan above 80% LVR, and the premium scales with the loan amount and your deposit size. On a $500,000 loan with a 10% deposit, LMI could add between $15,000 and $20,000 to your upfront costs, depending on the lender and insurer. That premium is usually capitalised into the loan rather than paid in cash, but it increases your total borrowing and your monthly repayments. If you're managing other debts from the separation, such as a car loan or personal loan, reducing those liabilities before applying can improve your borrowing capacity and potentially allow you to reach the 20% deposit threshold without LMI.

Fixed, Variable, or Split: Which Rate Structure Works for a Holiday Home?

A split loan structure often works for holiday homes because it balances certainty with flexibility. You fix a portion of the loan, typically 50% to 70%, to lock in repayments on the bulk of the debt, then leave the rest on a variable rate with an offset account. Rental income from holiday bookings can sit in the offset, reducing interest on the variable portion while you maintain the fixed rate security on the larger share. If rental income is seasonal, as it often is in coastal or alpine areas, the offset gives you a buffer during quieter months without needing to prepay the fixed portion.

Fixed rates for investment properties are currently sitting between 5.8% and 6.3% depending on the term and lender, while variable rates are slightly higher at 6.2% to 6.6%. The rate difference narrows over time as fixed terms expire and roll to variable, but locking in a portion now protects you if rates rise further during the first few years of ownership. Variable-only loans offer the most flexibility if you expect a lump sum from the property settlement or plan to make additional repayments, but they leave you exposed to rate increases.

How Does Rental Income Affect Your Borrowing Capacity?

Lenders assess rental income from a holiday home at 80% of the market rent, which accounts for vacancy periods, maintenance costs, and seasonal fluctuations. If the property is in a location with strong short-term rental demand, such as Byron Bay hinterland or the Mornington Peninsula, you'll need to provide evidence of comparable rental yields in the area. Most lenders accept a property manager's rental appraisal or a comparative market analysis showing similar properties and their average nightly or weekly rates.

In practice, that means a property generating $600 per week in gross rent during peak periods might only be assessed at $480 per week for serviceability purposes. Over a year, that reduces the lender's assumed rental income by around $6,200, which directly impacts how much you can borrow. If you're relying on rental income to service the loan, you'll need either higher gross rents or additional personal income to meet the lender's 3% serviceability buffer. Some lenders offer slightly higher shading rates, up to 85%, for properties with a proven rental history or long-term lease agreements, but that's less common with holiday homes where occupancy is variable.

Interest-Only or Principal-and-Interest Repayments?

Interest-only repayments are available on holiday home loans for an initial period of one to five years, though most lenders cap interest-only terms at five years for investment properties above 80% LVR. The monthly repayment on a $500,000 loan at 6.4% interest-only is roughly $2,670, compared to around $3,370 on principal-and-interest. That difference can matter if you're managing other debts or building cash reserves in the first few years after separation.

Interest-only loans don't reduce your debt, which means you're not building equity through repayments, only through capital growth and any lump sum payments you make. If you're planning to sell the property within five to seven years, or if you expect a significant cash injection from the settlement that you'll use to pay down the loan, interest-only can improve cash flow without sacrificing long-term strategy. If you're holding the property as a long-term investment or planning to transition it to a permanent residence later, principal-and-interest repayments start building equity immediately and reduce your total interest cost over the life of the loan.

Can You Use the Australian Government 5% Deposit Scheme for a Holiday Home?

You can't use the Australian Government 5% Deposit Scheme or Help to Buy for a holiday home. Both schemes are restricted to owner-occupied properties where the buyer intends to live in the home as their primary residence. That rules out holiday homes, investment properties, and any property you plan to rent out, even if you also use it yourself during part of the year. If you're purchasing a property that will genuinely be your principal place of residence after separation, and you meet the first home buyer eligibility criteria, the 5% Deposit Scheme may be an option, but it can't be used for a property you'll rent short-term or use only occasionally.

What About Stamp Duty and State Concessions?

Stamp duty on a holiday home is calculated at the standard investor rate in most states, with no first home buyer concessions or exemptions available unless the property will be your primary residence. In NSW, stamp duty on a $600,000 property is roughly $24,000. In Victoria, it's approximately $31,000. In Queensland, around $17,000. Those costs are in addition to your deposit, conveyancing fees, and any LMI premium, so they need to be factored into your total upfront budget.

Some states offer off-the-plan concessions for new apartments or units purchased before construction is complete, which can reduce duty by 25% to 50% depending on the state and the stage of construction. In Western Australia, for example, a pre-construction off-the-plan purchase valued at $700,000 attracts a 100% concession capped at $50,000, bringing duty close to nil. Those concessions are available to all buyers, not just first home buyers, and can make a new holiday unit more affordable than an established property when you include the duty saving.

Structuring Ownership After Separation

If you're purchasing a holiday home with a new partner or co-buyer after separation, most lenders allow joint ownership with equal or unequal shares, provided both applicants are on the mortgage and both meet the serviceability requirements. Unequal ownership structures, such as 60/40 or 70/30, are possible but require a separate declaration of trust or ownership agreement, and some lenders won't accept them without additional legal documentation.

Purchasing in your sole name gives you full control over the property and any future sale or refinance decisions, but it also means you carry the full debt and serviceability responsibility. If your income is reduced due to part-time work or a career change after separation, joint ownership can increase your borrowing capacity by combining two incomes, though it also means shared decision-making and potential complications if the relationship changes. If you're buying with a family member, such as a sibling or adult child, as a joint investment, lenders treat it the same as any other joint application and assess both incomes and liabilities together.

Call one of our team or book an appointment at a time that works for you. We'll walk through your current financial position, your deposit options, and the loan structures that fit your situation, so you can move forward with clarity and confidence.

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