A loan to buy a holiday house may be secured as standard residential mortgage or with investment property finance, depending on the lender and usage plans. Buying a second home to use for weekends and holidays is a popular move for many Australians. It can provide a sanctuary, a hub for family gatherings, and the start of creating a lifetime of great experiences and memories.
Financially, it may also be an astute move. Over time, buyers may build equity in the property and capital growth which may contribute to building their overall wealth. Having a place to spend holidays may also save on accommodation costs.
Many second homeowners also take advantage of the growing short-term rental market to derive an income from their property. Depending on how the finance is structured, this may deliver benefits in tax deductions as well as the additional income.
Before selecting what property to purchase, potential buyers can consider their options and speak with one of our brokers about the most suitable mortgage to work with their objectives and their budget.
Types of Holiday House Loans
A standard mortgage product may be used to finance a second home purchase. If the buyer has plans to use the property as a short-term rental for part or all of the time, lenders may consider the purchase as an investment, with investment property mortgage products applicable.
For many buyers, a standard owner-occupier mortgage may suit with repayments paying down both interest and principal, typically a variable interest rate applicable, and the property used as loan security.
If the property is being purchased primarily for rental purposes, an investment property mortgage may be sought.
Requirements for Loan to Buy a Holiday House
The requirements for approval for a second home mortgage may depend on varying scenarios. Where the buyer already has a mortgage on their primary residence and the second home is a second mortgage, lenders would be reviewing a number of factors.
An 80% loan-to-value ratio (LVR) with 20% deposits is the standard requirement. Lower deposit loans may be approved, but Lenders Mortgage Insurance (LMI) would apply. If the buyer intends to utilise equity in their primary residence, lenders would be reviewing if this alters the LVR on the mortgage on that property.
Applying for conditional loan approval prior to selecting a property, can assist to clarify the most suitable price range and to make buying decisions. Pre-purchase approval can also provide leverage when negotiating with a vendor and confidence when buying at auction.
If the second property is being used primarily as a rental and investment property, varying eligibility requirements may apply. Lenders tend to be stricter with this type of finance as it can be seen that a buyer may more easily default on investment property loans rather than primary residence loans.
Investment property owners are required to report their income to the ATO and may claim some expenses as tax deductions.
Interest Rates on Holiday House Loans
Property loans can have fixed or variable interest rates. Individual rates are offered based on the LVR, deposit and financials and credit score of the buyer. Variable rates are subject to change, usually in line with Reserve Bank cash rate decisions.
In determining a rate offer for a second home buyer, lenders will be closely reviewing current expenses and debts as well as the forecasts for interest rates, in setting the borrowing capacity.
Rates do vary across the mortgage market with some lenders more competitive in the second home mortgage sector.
Estimate Your Loan to Buy a Holiday House
If considering buying your own home-away-from-home, start by using our calculators to get estimates on how much you may be able to borrow to assist with setting your price guide. Use the Borrowing Capacity calculator to get an estimate to set your buying price range, and the Repayments Calculator to work the costs into your monthly budget.
Buyers of second homes will need to pay Stamp duty which varies with the location – state or territory and is dependent on the property value or price. Conveyancing costs and lender charges will also apply.
While it can be an idyllic idea to have a place to escape to whenever you want, there are the realities of ongoing expenses to consider. Buyers will need to factor in local Council rates, water rates, power, insurance and maintenance.
Buyers may also be advised to assess any risks posed by weather events in the preferred area or location. If you are not completely familiar with the area, refer to local flood maps and seek information on major weather events going back several years.
For more information and guidance on finance for a holiday house, speak with the Yes experts.
For competitive rates on a loan to buy a holiday house, contact a Yes Home Loans broker online or by phone 1800 000 937
DISCLAIMER: THE INTENTION OF THIS ARTICLE IS TO PROVIDE INFORMATION OF A GENERAL NATURE ONLY. THE ARTICLE IS NOT PROVIDED WITH THE INTENTION OF BEING THE ONLY SOURCE OF INFORMATION ON WHICH PROPERTY BUYERS SHOULD MAKE THEIR DECISIONS. BUYERS WHO NEED GUIDANCE AND ADVICE ON PROPERTY LOANS BASED ON THEIR INDIVIDUAL CIRCUMSTANCES ARE ADVISED TO CONSULT WITH A SPECIALIST MORTGAGE BROKER OR FINANCIAL CONSULTANT. NO LIABILITY IS ACCEPTED FOR MISREPRESENTATION OF FOR ANY ERRORS IN DATA, POLICIES AND SPECIFIC DETAILS THAT HAVE BEEN OBTAINED FROM OTHER SOURCES.