Britain’s semi-commercial mortgage market is on course to exceed £1 billion of annual lending in 2026 as specialists expand their share of the sector, TAB has forecast.

The commercial mortgage lender estimated that £242 million was advanced against mixed-use property in the second quarter, up by about 20% from £201 million a year earlier.

About 470 mortgages were completed during the quarter, according to the first edition of TAB’s Mixed-Use Mortgage Monitor. This represented a 13% increase from approximately 415 transactions in the second quarter of 2025.

Duncan Kreeger, founder and chief executive of TAB, said: “There are more deals being done. There is more money being lent.”

He added: “Borrower appetite is strong.”

TAB said the expansion reflected the retreat of mainstream banks from smaller and more complicated commercial loans. Challenger banks, building societies and specialist lenders have moved into the resulting gap.

The number of lenders active in the market rose from 25 to 28 during the year to the end of June. Product numbers increased by almost 20%, with 94 dedicated semi-commercial and mixed-use mortgages available.

Kreeger said: “Mainstream banks are now focusing on larger relationship managed customers with challenger banks, specialist lenders and – to an extent – building societies taking a larger role.”

Three specialist propositions entered the market during the second quarter, taking lender numbers to a new high after the departure of another provider early in 2026.

LANDLORDS SEEK DIVERSIFICATION

Demand is also being supported by experienced residential landlords moving into mixed-use property, TAB said. Such assets combine commercial and residential premises within the same security and can offer more diversified sources of rental income.

Kreeger said: “But we are seeing more demand for mixed-use finance from investors who have traditionally focused on the residential market alone – investors who want to diversify their portfolios now.”

He added: “At the same time, lender competition is increasing, giving brokers and borrowers more choice than they had a year ago. That’s also forcing lenders to provide better service – in our case offering our mortgages at bridging speed.”

Average loan sizes increased by about 6% year on year, from £484,000 to £515,000. This helped the total value of lending to grow more quickly than transaction numbers.

PRICING REMAINS COMPETITIVE

Average loan-to-value ratios increased from 64% to 67%. TAB said finance remained readily available for well-structured transactions at up to 70% loan to value, particularly where borrowers were experienced and the property produced diversified income.

Average advertised fixed rates fell to about 6.70% after reaching 6.85% in the first quarter. Rates quoted by challenger and specialist lenders ranged from approximately 6.0% to 9.0%, reflecting differences between properties and the complexity of valuations.

Kreeger said: “Compared to standard commercial mortgages, the pricing of loans and fees across the semi-commercial segment is wide, reflecting the diversity of assets and the complexity of valuation.”

TAB’s variable-rate mortgage is priced at Bank Rate plus 3.5 percentage points, giving a current rate of 7.25%.

The lender expects challenger banks to compete across a broader range of loan sizes during the second half of the year. It also anticipates that specialists will develop more products combining bridging and longer-term finance.

Kreeger said: “At the rate the market is growing, with the value of deals growing 14 per cent over the last quarter, we expect – assuming current growth continues – that annual lending to exceed £1 billion by the end of 2026.”

The monitor covers first-charge mortgages secured against properties containing both residential and commercial uses. It excludes bridging loans with terms of less than 25 months.

Its estimates draw on published rate cards, product announcements, lender entries and exits, pricing movements and TAB’s transaction data. TAB acknowledged that no trade body publishes separate market-wide lending figures for the sector.