The semi-commercial mortgage sector is poised for significant growth, with lending expected to surpass £1 billion by the end of 2026. This surge is driven by an increase in transaction volumes and average loan sizes, indicating a robust market for landlords and investors in mixed-use properties.
What is Driving the Growth in Semi-Commercial Mortgages?
In the second quarter of 2026, semi-commercial lending reached £242 million, marking a 20% increase from £201 million in the same period last year. This growth reflects a broader trend in the semi-commercial mortgage market, which encompasses properties that combine residential and commercial uses. The number of transactions also rose by 13%, from approximately 415 in Q2 2025 to 470 in Q2 2026, suggesting a healthy appetite for these types of loans.
How Are Average Loan Sizes Changing?
Average loan sizes have seen a notable increase of about 6% year on year, climbing from £484,000 to £515,000. This rise in loan size has contributed to the overall growth in lending value, indicating that borrowers are taking on larger projects or investing in more valuable properties. This trend is essential for investors looking to finance bigger developments in the mixed-use sector.
What This Means for Landlords and Investors
For landlords and investors, the expanding semi-commercial mortgage market presents opportunities for diversification and growth. With an increase in active lenders from 25 to 28 over the past year and a nearly 20% rise in dedicated semi-commercial mortgage products to 94, borrowers have more options available. The average loan-to-value ratio has also increased from 64% to 67%, allowing investors to use their assets more effectively.
Challenger banks and specialist lenders are stepping in where mainstream banks have scaled back, particularly after the 2008 financial crisis. This shift has created a more competitive environment, benefiting borrowers with more tailored products and potentially better rates. As the market continues to grow, stakeholders should keep an eye on lending trends and product offerings to capitalize on emerging opportunities.
What Are Current Interest Rates Like?
Average headline fixed rates have eased slightly to around 6.70%, down from 6.85% in the first quarter of 2026. Challenger and specialist lenders are offering rates that range from approximately 6.0% to 9.0%, depending on the complexity of the asset and the transaction. This slight reduction in rates may encourage more borrowers to enter the market, further driving up lending volumes.
Frequently Asked Questions
What types of properties qualify for semi-commercial mortgages?
Semi-commercial mortgages are designed for properties that have both residential and commercial elements, such as a shop with flats above or a mixed-use development. These properties must be secured against a single title.
How can I find the best rates for semi-commercial mortgages?
To find the best rates, borrowers should compare offers from various lenders, including challenger banks and specialist lenders. It’s also beneficial to consult with a mortgage broker who specializes in commercial mortgages to access a wider range of products and rates.