Loans for short-term holiday rentals

Understanding holiday rental home loans

A holiday rental home loan is an investment loan designed for properties you rent out to guests. This type of investment loan can also be referred to as a vacation home loan or short term rental mortgage. Unlike traditional investment loans, these loans account for income that may vary throughout the year, as occupancy levels often fluctuate between peak and off-peak seasons.

Holiday rental loans can be used to:

• Purchase a new property intended for Airbnb or other holiday property platforms
• Refinance an existing investment home loan for a holiday property
• Release equity to fund improvements or upgrades to a holiday rental

Income from holiday rentals can be complex and vary throughout the year, making it essential to work with a lending specialist who understands how short-term rental income is assessed. A lender experienced in holiday rental home loans can help structure your application effectively and ensure your borrowing capacity reflects both your property’s potential and your overall financial position.

Eligibility and requirements for holiday rental and Airbnb mortgages

When applying for a loan for a holiday rental or Airbnb property, lenders typically assess:

1. Your personal income and expenses

Lenders assess your overall financial situation to understand your ability to manage and repay a loan. They typically review your income, expenses, existing financial commitments, and general financial stability before making a lending decision.

2. Your credit profile

Lenders review your credit profile to understand how you’ve managed credit and repayments in the past. A consistent record of meeting your financial commitments, such as paying bills and loans on time, helps demonstrate that you’re a reliable borrower. They may also consider your credit score, the types of credit you’ve held, and the length of your credit history to gauge your borrowing behaviour and financial responsibility.

3. Deposit and equity

A deposit of 20% is generally preferred but options also exist for borrowers with smaller deposits. You can read more about home loan deposits here. Using home equity from another property can also help you reach your funding goal faster. Yard’s Home Equity Guide and Home Equity Calculator make it easy to see how your equity works and how much of it you could potentially use toward your next goal.

Home equity example:

‍Let’s say your property is valued at $1,000,000 and your remaining mortgage for an Airbnb property is $500,000. Most lenders allow you to borrow up to 80% of your property’s value, in this case, $800,000. This means you could potentially access $300,000 in usable equity ($800,000 minus your existing $500,000 loan). The amount you can borrow will ultimately depend on your lender’s criteria and your individual financial situation.

Speak to one of our investment loan specialists to discuss how much equity you can access in your property.

4. Property type and location

Properties in high-demand holiday areas tend to offer stronger occupancy rates, which can improve borrowing confidence. However, lenders may apply different criteria for properties in remote or tourism-dependent locations. 

5. Rental income

Lenders will typically review the actual rental income from your holiday property. If rental income fluctuates throughout the year, they’ll assess 12 months of rental history, for example, you will be required to provide a full year of Airbnb statements.

It’s also important for lenders to understand the property’s ongoing expenses, such as cleaning and management costs, so they can accurately determine the net rental return. Unlike projected figures, lenders rely on verified income and expense data to assess the sustainability of your investment.

We understand every market is different, and knowing where to invest can feel overwhelming. Speak to one of our Loan Consultants for a free property suburb report to help you gauge the local rental market.

Buying a holiday home: What you need to know

Apart from finding the right location, as an investor, it’s important to plan ahead for both the financial and practical sides of ownership. For a deeper understanding of property investment planning, explore Yard’s guide to buying a second property. Here are some key things to consider:

• Understand local regulations: Councils often have specific zoning and usage rules for short-term rentals.
• Account for higher costs: Cleaning, maintenance, and management fees are generally higher for short-term rentals compared to long-term leases.
• Think long-term: In addition to achieving strong rental returns, choose a location with good potential for capital growth to maximise your investment over time.
• Insurance and compliance: Ensure the property is covered for holiday rental use and meets safety standards.

Holiday home investment: Is it right for you?

A holiday home can serve financial goals and offer a private getaway and a source of passive income. Yet, it’s important to balance the lifestyle appeal with the financial reality. If you’re unsure whether a holiday rental suits your strategy, Yard’s investment property guide outlines the benefits and challenges of different investment approaches. 

The following factors investors often weigh are: 

• Rental yield: The balance between annual income and property costs.
• Seasonal demand: Some regions earn most of their income during a few key months.
• Tax implications: Holiday rentals may qualify for tax deductions on expenses, but rules vary, especially if the property is used personally for part of the year
• Location and target market: Choose an area with consistent tourism demand.
• Loan structure: Decide whether a fixed or variable rate suits your goals. Yard’s investment home loan rates can help you compare options.
• Cash flow management: Plan for quiet periods by maintaining a financial buffer for repayments and property costs.
• Exit strategy: Consider whether you’ll hold, sell, or convert the property to a long-term rental in future.

Final thoughts

Investing in a holiday rental property can be both rewarding and financially empowering when approached with careful planning. From flexible income to potential capital growth, the right loan structure can help you unlock new investment opportunities.

Yard offers a range of lending solutions designed for property investors, including low doc, investment, and home equity loans. These give you flexibility no matter your income type or experience.

To learn more about investment property loans or discuss your options with a specialist, visit Yard’s investment property loan page.