Newham Council has reached a deal with NatWest bank to pay off its six LOBO loans at a lower rate of interest through the Public Works Loan Board.
The council says this will save it the equivalent of £3.5m per year over 41 years – the length of time the loans had left to run.
LOBO loans – are controversial and have been subject to legal action – can often offer interest rates below that of central government’s PWLB, but allow lenders to change rates at set times in the future.
Refusing to pay updated interest rates requires councils to pay back the loan in full.
Newham took out six LOBOs with the bank in 2009, each with a value of £25m, but the council has received funding from the PWLB to pay of the loans in full. It will now make repayments to the PWLB at a lower rate of interest.
The Mayor of Newham, Rokhsana Fiaz, said she had delivered on her commitment to tackle the “scourge of risky LOBO loans”.
“Over the past 10 years that the loans have been in place, it’s cost us an extra £31m in interest payments compared to borrowing from the PWLB. That’s money that should have been spent on Newham residents.
“The deal we’ve successfully nailed down today means that we’ll be saving up to £143m for Newham residents, which is a successful resolution of this litigation.”
Vica Rogers, from the anti-LOBO campaign group Research for Action, said: “Newham, like most councils across the country, are at breaking point due to funding cuts. Councils should not also be suffering a drain on their finances from toxic LOBO loans.
“Annual savings of £3.5m will make a huge difference to people in Newham who are at the sharp end of the housing crisis, knife crime epidemic and other crises brought about by funding cuts.”
A spokesperson from RBS – NatWest’s parent company – said: “We value our customers and are open to discussing restructuring or refinancing of LOBO loans where beneficial for the customer.
“To this end, we are happy to have commercially agreed pricing with Newham Council for early repayment of their loans, however we do not recognise the figures currently being quoted.”
Last year, shadow chancellor John McDonnell called for an investigation into LOBOs. In March it was reported that the RBS is planning to close down the last £1bn of its LOBO loan portfolio by the end of this year.
