Barclays ditches LOBO loans

2 Sep 16

Barclays has confirmed that it has scrapped its “Lender Option, Borrower Option” loans to councils and moved them all over to a fixed interest rate.

So-called LOBO loans were provided to local authorities and housing associations over long-term periods, typically between 50 and 70 years and were used to finance school and road building and other capital projects.

When introduced, they often offered cheaper lending rates than the Public Works Loan Boards. Loans worth around £15bn are believed to have been taken out.

However, under LOBO arrangements, the lender retained the ability to vary the interest rate applied at certain times, at which point the borrower has the option of paying more interest or repaying the loan.

Concern had been mounting that the loans no longer provide value for money for the taxpayer. Residents from 24 local authorities have mounted legal objections to the use of LOBO loans claiming they are “irrational expenditure”.

“Under the changes Barclays is permanently waiving it’s ‘lender option’ to amend the interest rate at given periods. This will create certainty for the client for the duration of the loan, by locking in the fixed rate for its lifetime,” a Barclays spokesman said.

“Over a hundred local authorities and housing associations will benefit from greater certainty that their borrowing costs will not rise in future.”

He added that they will also enjoy lower break costs than there would have been had Barclays retained its right to change the interest rate.

“The original value they secured when taking out the loan at rates lower than those available publicly at the time is now locked in for the lifetime of the loan.”

The bank added that it would also benefit commercially as it would reduce the costs of managing the book.

Barclays said its public sector LOBO clients were informed of the change in June.

  • Vivienne Russell

    Vivienne Russell is managing editor of Public Finance magazine and

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