A holiday home — or bach — is one of New Zealand’s most iconic property aspirations. Whether it’s a beachside cottage on the Coromandel or a lakehouse in Wanaka, holiday property finance has its own set of rules. Banks treat holiday homes more cautiously than primary residences, and those used as short-term rentals face additional scrutiny.
Holiday homes used solely for personal use are generally financed as investment properties — requiring a 35% deposit and assessed at investment property rates. Banks rarely count holiday rental income (Airbnb, Bookabach) toward your serviceability, as income is considered seasonal and unreliable. Some banks restrict lending on holiday properties in remote locations, leasehold land, or small sections. A mortgage broker is particularly useful for holiday home lending.
How Banks Classify Holiday Homes
Banks classify holiday properties into two main categories:
1. Owner-occupied holiday home (personal use only)
A second property you own and use personally but don’t rent out. Most banks treat this as an investment property for lending purposes, requiring:
- Minimum 35% deposit (LVR 65%)
- Investment property rates and assessment criteria
- Full income servicing assessment without rental income offset
Some banks will lend at owner-occupier LVR (80%) if you can demonstrate the property is genuinely for personal use and your primary residence is elsewhere — but this requires a strong relationship and case-by-case approval.
2. Holiday rental property (short-term letting)
A property you rent out via Airbnb, Bookabach, or similar platforms. Banks assess this as an investment property. Key challenge: most banks will not count short-term rental income toward your serviceability, because:
- Income is seasonal and highly variable
- It depends on your active management
- Platforms can change their policies or local regulations can restrict short-term letting
- The IRD treats income differently to long-term rentals
This means you must service the full mortgage from your primary income — the rental income is, for lending purposes, invisible.
Location and Lender Appetite
Not all holiday locations are equal in bank eyes:
| Location type | Lender appetite | Notes |
|---|---|---|
| Coastal/major lifestyle areas (Coromandel, Bay of Islands, Hawke’s Bay) | Good | Established resale market; reasonable liquidity |
| Central Otago / Queenstown | Generally good | High values; some leasehold risk |
| Remote rural areas | Lower | Limited resale market; specialist lenders |
| Islands (Waiheke, Great Barrier) | Mixed | Waiheke generally fine; more remote islands harder |
| Leasehold land | Restricted | Many banks won’t lend on leasehold holiday properties |
Airbnb Income and Mortgage Serviceability
If you’re relying on short-term rental income to service the mortgage, plan carefully:
- Most main banks will not count Airbnb income in affordability assessments
- Non-bank lenders may take a more flexible view on documented short-term rental income
- Even if the bank ignores it, IRD requires you to declare it — see below
Practical advice: If the numbers only work because of Airbnb income, you’re taking on more risk than the bank will acknowledge. Build a cashflow model that includes both the “Airbnb covers costs” scenario and the “vacant in off-season” scenario.
Tax Treatment of Holiday Rentals
Holiday rental income is taxable. If you use the property personally and rent it at times, you must apportion expenses:
- Expense apportionment: You can only deduct expenses for the proportion of time the property is rented out. Personal-use days are not deductible.
- Mixed-use asset rules: IRD’s mixed-use asset rules (from 2013) apply to properties used both personally and for income. They limit the deductions available when the property is “unused” for significant periods.
- GST: If your turnover from short-term rentals exceeds $60,000, you must register for GST. Registering for GST on a residential property is complex — get specialist tax advice.
Insurance for Holiday Rentals
Standard home insurance policies typically exclude short-term rental activity. If you’re letting your property via Airbnb or Bookabach, you need:
- A specialist holiday home/rental insurance policy, OR
- An endorsement to your existing policy specifically covering short-term letting
Airbnb’s “Host Guarantee” programme provides some coverage, but it is not a substitute for a proper insurance policy. Bookabach/Trade Me Property has its own host protection offering. Check what is and isn’t covered before listing.
Body Corporate and Short-Term Letting
If your holiday property is a unit title (apartment or townhouse), check the body corporate rules before listing it on Airbnb:
- Many body corporates in NZ have rules restricting or banning short-term letting
- Breaching these rules can result in fines and enforcement action
- Check the rules before purchasing, not after
Frequently Asked Questions
Can I get a holiday home mortgage with a 20% deposit?
In most cases, no. Banks classify holiday homes as investment properties and require 35% deposit (LVR 65%). Some non-bank lenders may go to 70–75% LVR for well-located holiday properties, at higher rates.
Will the bank count Airbnb income for my holiday property?
Most main banks will not. Some non-bank lenders will consider documented short-term rental income (typically 2+ years of tax returns showing it). Using a mortgage broker will help you identify which lenders are most flexible.
Do the same bright-line rules apply to a holiday home?
Yes — if you sell a holiday property within 2 years of purchase, you’ll likely owe income tax on any capital gain (the bright-line test). The family home exemption does not apply to holiday properties you don’t live in as your main home.
Can I use my holiday home personally and rent it out?
Yes — many NZ bach owners do this. You must be aware of the tax apportionment rules (IRD’s mixed-use asset rules), keep records of personal-use days vs rental days, and declare rental income on your IR3 return.
What’s the difference between a bach and an investment rental?
Legally, nothing — both generate assessable income and are subject to the same tax rules. The distinction matters practically because banks treat them differently for lending, insurers treat them differently for cover, and IRD treats mixed-use assets (personal use + rental) under specific apportionment rules that don’t apply to full-time rentals.