Semi-commercial enquiries are on the rise but lender appetite can still be restrictive, especially for lower loan sizes, and new entrants to the market would be welcome, brokers say.
Morgan Stewart, principal at GPS Financial, said the firm had “definitely” seen a rise in enquiries since the start of the year and expected that “momentum to carry on at a steady pace rather than turning into a manic rush”.
He continued: “Over the long term, semi-commercial properties will only continue to appeal – they offer a more diversified income and stronger yields than basic buy to let, especially for investors who are familiar with the space and understand how these assets really perform.
“Lender appetite is there, but they are favouring the more straightforward semi-commercial properties with sensible income profiles and clear exits. That does change quickly once a deal becomes more complex. Short leases, higher commercial weighting or weaker tenant profiles can significantly narrow the lender pool.”
Jason Berry, group sales director at Crystal Specialist Finance, said semi-commercial lending has “quietly become a significant part of the wider investment conversation this year”.
He noted that since the start of the year, semi-commercial has accounted for around 20% of all enquiries, adding that it was a “substantial share and, importantly, not a short-term spike”.
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“What that tells us is that investors are thinking more strategically. Traditional buy-to-let margins have been squeezed, and landlords are increasingly focused on yield, resilience and portfolio balance. Semi-commercial assets offer a blended income profile that can enhance returns while spreading risk across both residential and commercial elements.
“In the near term, I expect activity levels to remain strong as more landlords diversify their asset classes. Longer term, this feels like a structural shift rather than a trend – professional investors are becoming more sophisticated and mixed-use property is naturally part of that evolution,” Berry noted.
Daniel Bell, director and mortgage adviser at Bell Financial Solutions, said that in Manchester, where the firm operates, semi-commercial enquiries have been “ticking along at a sensible and sustainable pace”.
“Most of the interest we are seeing comes from landlords and business owners who already understand mixed-use property and are focused on long-term income rather than quick wins.
“There is still strong appetite for properties with residential flats above shops or offices, particularly in established suburbs and town centres across Greater Manchester. These types of assets remain attractive because residential demand locally is strong, even where the commercial element is more modest,” he added.
Bell stated that he did “not expect a sudden jump in activity over the next few months, but I also do not see demand falling away”.
“Borrowers are more cautious than they were, but those with experience and sensible gearing are still moving forward. Over time, the continued reshaping of the high street should keep semi-commercial property firmly on the agenda in this region,” he said.
Lender capacity for smaller loan sizes more limited and new entrants would be welcome
Stewart said he thinks there is “enough capacity in the market” for “good-quality deals” and “more lenders would be welcome”.
However, it is crucial that new entrants “genuinely understand the semi-commercial space, rather than trying to force cases through residential style criteria”.
“From a broker’s point of view, it is glaringly obvious that there is a gap at the lower end of the loan size spectrum. Most lenders in the commercial space are focused on larger loans with relatively high minimums, which means smaller but perfectly viable deals are being under-served.
“I believe that more lenders supporting smaller loan sizes with pragmatic underwriting would help rebalance the market,” he said.
Key opportunities are “well-located, mixed-use properties” where the residential element supports demand and the commercial income “enhances the yield”, and strategies should focus on improving lease quality or stabilising income remain popular.
Stewart said there are also challenges around valuation scrutiny and exit certainty, adding that assumptions on rent, lease length and tenant strength can “hinder applications” and lenders were taking a “closer look at how realistic refinance of sale exits actually are”.
“The deals that will work best are the ones with strong fundamentals and a clear, believable plan from the outset,” he noted.
Bell agreed, adding that lenders are “open for business, but they are careful”.
“Most are happiest when residential income carries the deal and when there is a clear plan for the commercial space. Where frustration creeps in is inconsistency. The same property can be viewed very differently depending on the lender, particularly when it comes to local rents or shorter leases.
“From a broker point of view, what would help most is clearer criteria and fewer surprises partway through the process. Valuations and rental assumptions are still the areas where momentum is most likely to stall,” he said.
Berry said lender appetite is “healthy” and there is “clear competitiveness in the market at the moment, with lenders actively seeking niches where they can deploy capital efficiently and achieve strong returns”.
“We’re seeing differentiation not just on price, but through criteria – whether that’s flexibility around tenant types, commercial covenants or mixed-use configurations.
“That said, competition is always welcome. New entrants drive innovation, sharpen pricing and ultimately improve outcomes for borrowers. A diverse funding landscape ensures the sector remains dynamic and responsive, which is particularly important in more specialist areas like semi-commercial,” he added.
He noted that leverage would be a key “development that would help stimulate growth”.
“Higher loan to values (LTVs) – particularly where there is a strong residential underpinning – would unlock additional transactions and potentially support more owner-occupier participation in mixed-use premises. There’s also room for greater consistency in underwriting approaches.
“In some cases, semi-commercial assets with a dominant residential element are still assessed overly conservatively. A more nuanced risk assessment framework could increase liquidity without materially increasing exposure,” he said.
Liz Syms, CEO and founder of Connect Mortgages, said that while lender appetite is “growing” and there had been some “encouraging product launches”, more capacity would be welcome.
“Semi-commercial lending remains predominantly the domain of specialist and challenger lenders. There is a real gap at the smaller end of the market, where a classic shop with a flat above in a regional town might need a £150,000 loan.
“That loan is often too small for specialist commercial lenders but too complex for residential ones. More lenders entering with clear, simple products and sensible criteria would be very welcome,” she noted.
‘Semi-commercial is no longer a peripheral strategy’
Berry said that looking ahead, the “opportunity” in semi-commercial “lies firmly in yield and income resilience”.
He continued: “Well-located mixed-use properties, with quality tenants and adaptable space, can offer compelling returns. However, the sector isn’t without its challenges.
“Valuation complexity, tenant covenant strength and ongoing changes to high street dynamics mean investors must be selective and well-advised.
“Overall, semi-commercial is no longer a peripheral strategy. For informed investors who understand both the opportunities and the risks, it is becoming an increasingly strategic part of the property finance landscape.”
Bell added that in the future, the “real opportunity lies in breathing new life into underused commercial buildings” – something Manchester has been “doing successfully for years”.
“The challenge will be making sure funding keeps pace with that reality rather than working against it,” he added.
