Escalating tensions in the Middle East have triggered a sharp rise in swap rates in recent months, increasing funding costs across the lending market.
But analysis from Octane Capital suggests the longer-term picture remains far more stable than recent headlines might indicate.
The lender analysed average daily swap rates since the outbreak of the Iran conflict on 28 February 2026 and found that one-year swap rates have increased by 0.56%, while five-year swaps have risen by 0.49%.
The rise reflects growing concerns around inflation, energy prices and wider economic uncertainty, all of which have fed through to government bond markets and, ultimately, the cost of fixed-rate funding.
HIGHER FUNDING COSTS
While the impact has been most visible in the residential mortgage market, higher funding costs are also being felt across specialist lending sectors, including bridging, development finance and commercial property lending.
However, Octane’s analysis suggests the recent increases are largely a reaction to geopolitical events rather than a fundamental shift in lending market conditions.
Comparing average daily swap rates between 1 January and 10 June 2026 with the same period in 2025, the lender found that one-year swap rates have actually fallen by 0.11%, while five-year swap rates are only marginally higher, rising by 0.06%.
For developers and property investors, the data provides a degree of reassurance at a time when funding costs remain under close scrutiny.
RIPPLE EFFECT
Jonathan Samuels (main picture, inset), Chief Executive Officer of Octane Capital, says: “Global events will always have a ripple effect across financial markets and the recent escalation in tensions across the Middle East is a prime example of how quickly sentiment can shift.
“We’ve seen a significant increase in swap rates since the conflict began and that has inevitably fed through into mortgage pricing, creating a less favourable environment for borrowers in the short term.”
STABLE LANDSCAPE
But he adds: “It’s important not to view these movements in isolation. Whilst recent months have seen considerable volatility, the longer-term picture shows that swap rates remain broadly in line with where they were this time last year.
“Markets will continue to react to geopolitical events, inflation data and central bank expectations, but borrowers should avoid reading too much into short-term movements. The underlying lending landscape remains considerably more stable than the day-to-day headlines might suggest.”
The figures come at a time when demand for specialist finance continues to grow, with developers increasingly prioritising speed, flexibility and certainty of execution as planning delays, construction costs and wider economic uncertainty continue to impact project delivery.
