Falling swap rates are improving funding conditions for property borrowers and point to a more constructive market environment heading into 2026, according to analysis from the specialist lender Octane Capital.

The firm said a combination of base rate stability, easing inflation and greater fiscal clarity since the Autumn Budget has helped to restore confidence in wholesale markets, driving a steady decline in short-term interest rate swaps that underpin fixed-rate lending.

Octane’s research tracked the average daily level of the one-year sterling interest rate swap following a series of key economic milestones since September, including successive Bank of England decisions to hold rates, the release of inflation data and the Budget.

In September, ahead of the Bank’s decision to keep the base rate unchanged, the average one-year swap rate stood at 4.09%. After the rate was held at 4%, swaps eased slightly to an average of 4.07% through to the publication of October’s consumer price inflation figures.

STEADY INFLATION

With inflation holding steady in October, confidence improved further and swap rates fell more sharply, averaging 3.90% in the run-up to the Bank’s next meeting in early November. A second consecutive hold reinforced expectations that borrowing costs had peaked, with swaps edging down again to 3.89%.

As inflation data later in November showed signs of cooling, the downward trend continued, with the average swap rate falling to 3.87% ahead of the Autumn Budget. In the weeks since the Budget, swap rates have declined further to around 3.84%.

Octane said the reduction in swap rates was particularly significant for borrowers in specialist finance markets, including bridging, refurbishment and development lending, where short-term pricing and certainty are critical.

Lower swap rates feed directly into cheaper fixed-rate funding, improving deal viability and supporting earlier decision-making.

MARKET SENTIMENT

Jonathan Samuels, chief executive of Octane Capital, said: “Swap rates are one of the clearest indicators of how the market is feeling about the future, and the consistent downward movement we’ve seen since September is genuinely encouraging.

“A combination of inflation easing, base rate stability, and greater fiscal clarity following the Autumn Budget has helped restore confidence, and that’s now filtering through to funding costs.”

COMPETITIVE PRICING

And he added: “For borrowers operating in the specialist finance space, this matters enormously. Lower swaps support more competitive pricing, stronger deal viability, and better forward planning across bridging, refurbishment, and development finance.

“As we head into the new year, the direction of travel is far more positive than it has been for some time, and it sets the market up well for a more active and confident start to 2026.”