Rate holds, softer inflation and fiscal clarity support a gradual fall in one-year swap pricing
Improving economic data and a series of Bank of England rate holds have helped push down one-year sterling swap rates in recent months, according to specialist lender Octane Capital, offering a more stable backdrop for property funding as 2026 approaches.
The bridging lender’s latest analysis tracks the average daily level of the one-year GBP interest rate swap from September onwards, covering key milestones including successive Monetary Policy Committee (MPC) decisions to hold bank rate, October and November inflation releases, and the Autumn Budget. The firm says the pattern points to a gradual but sustained easing in funding costs.
In September, before the Bank of England chose to keep the base rate on hold, the average one-year swap rate stood at 4.09%. After the decision to hold bank rate at 4%, the average slipped marginally to 4.07% up to the publication of October’s consumer price index (CPI) figures.
With October CPI showing inflation unchanged, market confidence improved and the one-year swap moved lower, averaging 3.90% ahead of the next Bank of England decision in early November. The MPC’s move to hold again reinforced expectations that the tightening cycle was at or near its peak, with the average swap rate edging down to 3.89%.
As further inflation data in November indicated some easing of price pressures, the one-year swap continued to fall, averaging 3.87% in the period before the Autumn Budget. The Budget itself was followed by another modest decline, leaving the average one-year swap at 3.84% in the weeks since.
According to Octane Capital, this combination of rate stability, moderating inflation and greater fiscal clarity has translated into a measured reduction in swap rates since early autumn, signalling a more predictable funding environment going into the new year.
For mortgage and specialist finance markets, the movement in swaps is significant. One-year swaps are a key reference point for the pricing of shorter-term fixed-rate products, and lower rates can support reduced funding costs, sharper pricing and improved feasibility for transactions.
The recent trend leaves many funders entering 2026 with stronger confidence in their cost of capital and more flexibility to back borrowers looking to launch or refinance schemes early in the year. For developers and investors, it suggests a more orderly operating environment after an extended period of volatility in both gilt and swap markets.
“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.” said Jonathan Samuels (pictured right), chief executive of Octane Capital.
“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.
“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.”
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