Semi-commercial mortgage lending climbs 14% as new lenders enter market

Lenders have advanced £250m of semi-commercial mortgages in the third quarter of 2026, according to research from TAB.

The latest Mixed-Use Mortgage Monitor report shows a 3% increase on the previous quarter.

The report estimates that semi-commercial mortgage lending has now grown by 36% since Q1 2025, when it stood at £184m per quarter.

However, the pace of growth has slowed slightly: year-on-year growth in lending values slowed from 20% in Q2 to 14% in Q3.

On an annualised basis, the market is now lending at a rate of £1bn a year for the first time since the Monitor's data series began in Q1 2025 — although over the last four quarters combined, lenders advanced around £936m.

TAB said the Q3 increase was driven by lenders entering the market in the spring.

New ranges launched in May and June typically take eight to 12 weeks to move from application to completion — meaning much of that business landed in July, August and September.

Refinancing from bridging onto longer-term debt also supported lending, as bridging loan books ran off. Steady economic growth over the summer helped, too.

The number of active semi-commercial term lenders reached 30 in Q3, up from 25 at the start of 2025. Two lenders entered during Q3 and none left.

Duncan Kreeger, CEO at TAB (pictured above), said: “We've seen another two lenders, both rooted in bridging, moving into longer-term semi-commercial lending — these lenders want to keep hold of borrowers when they refinance away from bridging loans. In fact, the last quarter extended a run of new entrants.

“One lender arrived in late 2025, and another three launched semi-commercial ranges in Q2 2026.

“Let's not forget the market has also absorbed a significant exit: MFS entered administration in February 2026, contributing to a dip in lending in Q1.”

The number of live products rose by 5%, from 94 in Q2 to 99 in Q3.

New products from the two entrants, together with new loan-size and LTV bands at an established lender, added to the total.

A small number of fixed-rate products were withdrawn in September as swap rates rose.

However, this was far fewer than the mass withdrawals seen across the mortgage market in March.

Duncan added: “Even at 99 products, semi-commercial remains a specialist corner of the market.

“Borrowers typically have a fraction of the choice available to residential or standard BTL borrowers, and many cases still need a broker who knows which lenders will consider a particular mix of commercial and residential space.”

Average loan sizes shrank by 1% to £510,000. TAB said newer lenders are writing more small-ticket loans, and average LTVs dipped slightly. These effects were partly offset by a growing appetite for larger loans elsewhere in the market.

The average headline fixed rate on semi-commercial term mortgages fell to 6.65% in Q3, from 6.7% in Q2.

In July and August, the Monitor found several established specialist lenders cut rates, in some cases by up to 75 basis points.

At the same time, new entrants were pricing towards the top of the market, with fixed rates of up to 7.99%.

Then, in September, two-year swap rates climbed above 4.7%.

High-street lenders repriced twice in the month, but most specialist lenders had not yet followed by the end of the quarter.

Duncan commented: “The Bank Rate stayed at 3.75% throughout Q3.

“While that's 25 basis points lower than it was a year ago, the average semi-commercial rate is 10 basis points higher.

“The gap between the two has widened from 2.55 percentage points in Q3 2025 to 2.9 percentage points now.

“The Monitor has seen this before. In Q1 2026, rising swap rates pushed specialist pricing up even though Bank Rate was unchanged.

“Semi-commercial pricing follows wholesale funding costs more closely than the Bank of England's headline rate, and borrowers waiting for base rate cuts to reach their mortgage may wait longer than they expect.”

The average LTV fell to 66.5%, from 67% in Q2.

Much of the sharpest new pricing was only available at or below 65% LTV.

As swap rates rose, lenders also applied tougher interest cover tests, which reduce the amount some borrowers can borrow.

Duncan said: “Valuers are taking a cautious view of commercial space in some locations.Expectations for secondary retail rents are down, which matter for typical mixed-use properties with a shop on the ground floor. Higher LTVs are still available, with some lenders offering up to 75 per cent, but the average deal is being written with a little more equity."

Brokers reporters transactions taking longer to complete in August.

TAB’s analysis suggests lending will continue to grow in Q4, but more slowly.

A sharp rise in swap rates in September is expected to feed through to pricing in the final quarter of the year, which is set to curtail activity somewhat.

Duncan explained: “Specialist lenders are likely to reprice upwards to reflect September's swap-rate rise, reversing some of the summer's cuts.

“On the plus side, September’s two entrants should begin to add completions in Q4 and Q1 2027, supporting competition.

"The next edition of the Monitor, covering Q4 2026, will show whether the market can reach £1bn for the calendar year.

“Semi-commercial lending is now running at a rate of £1bn a year, which would have seemed ambitious when we started tracking this market.

“Thirty lenders are active, borrowers have more products to choose from and the market has absorbed the loss of a significant lender without stalling.

“But growth has slowed from 20% to 14% over the past quarter and we expect Q4 to be a test of whether the newer entrants can keep lending at competitive rates when their own funding costs go up.

“For borrowers, the lesson from this year is that Bank Rate is not the number to watch.

“The average semi-commercial rate is higher than it was a year ago, even though base rate is lower.

“Anyone with a fixed rate ending in the next six months should be talking to a broker now rather than waiting for a miracle from the Bank of England.”