"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"
- Jonathan Samuels - Octane Capital
Octane Capital analysed the average daily level of the one-year GBP interest rate swap following a series of economic milestones since September, including successive bank rate holds, easing inflation data and the autumn budget.
The research shows that during September, before the Bank of England held the base rate at 5% on 18 September, the average one-year swap rate sat at 4.09%. After the decision to maintain the base rate at 5%, swap rates eased slightly to average 4.07% through to the release of October's CPI figures.
October's CPI figures showed inflation holding steady, and confidence continued to improve as swap rates fell more noticeably to average 3.90% in the run-up to the next Bank of England decision in early November. That decision to again hold rates reinforced expectations that borrowing costs had peaked, with the average swap rate edging down further to 3.89%.
As inflation data later in November showed signs of easing, swap rates continued to drift lower, averaging 3.87% in the period leading up to the autumn budget.
The budget provided further stability, and in the weeks that followed, the average one-year swap rate fell again to 3.84%.
The sequence of base rate stability, cooling inflation and greater fiscal clarity has driven a steady reduction in swap rates since September, pointing to a far more constructive funding environment heading into the new year.
For borrowers, this trend carries particular significance. Swap rates underpin the pricing of fixed-rate lending, and sustained reductions feed directly into lower funding costs, improved deal viability and greater certainty when planning projects. This proves especially relevant across specialist lending markets such as bridging, refurbishment and development finance, where speed, flexibility and short-term pricing are critical.
The downward movement in swaps suggests that lenders are entering 2026 with greater confidence, improved funding lines and more scope to support borrowers looking to act early in the new year. For developers and investors, this provides a more constructive backdrop following a prolonged period of volatility.
"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 Samuels. "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."
"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."
