Analysis finds recent geopolitical pressure has not materially shifted the broader lending environment
Swap rates and mortgage pricing have risen noticeably since the escalation of Middle East tensions earlier this year, though the longer-term lending landscape remains broadly stable, according to analysis by specialist lender Octane Capital.
The firm examined average daily swap rates from the start of the Iran conflict in late February, comparing them with the equivalent period immediately prior, and also assessed year-on-year movements across the first half of 2026 against the same period in 2025.
Both one-year and five-year swap rates rose considerably following the outbreak of hostilities. The average daily one-year swap rate increased by 0.56%, while the average daily five-year swap rate rose by 0.49%.
Geopolitical instability can drive volatility in global financial markets when investors grow concerned about inflationary pressures, energy prices, and broader economic uncertainty. These concerns typically feed through to government bond yields, which in turn affect swap rates and the cost of fixed-rate mortgage funding. The recent escalation in the Middle East has contributed to higher funding costs for lenders, placing upward pressure on fixed-rate mortgage pricing.
The longer-term data, however, presents a more measured picture. Octane Capital's comparison of average daily swap rates between 1 January and 10 June found that the average one-year swap rate has fallen by 0.11% against the same period in 2025. The average five-year swap rate rose by just 0.06% year-on-year — a marginal movement relative to the sharper increase recorded since the Iran conflict began.
Octane Capital said the data suggests recent swap rate movements have been driven primarily by short-term geopolitical events rather than a fundamental deterioration in the lending environment.
"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," said Jonathan Samuels (pictured right), chief executive of Octane Capital. "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.
"However, it's important not to view these movements in isolation. While 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."
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