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Councils owe millions on controversial Lobo loans.

Byline: Martin Shipton Chief Reporter

MORE than half of Wales' unitary councils have borrowed money from banks using controversial Lobo loans that are under investigation by a parliamentary committee, it has emerged.

Lobo stands for Lender Option Borrower Option and unlike a fixed-rate mortgage they have three key twists: the loan contract runs for between 40 and 70 years, councils have to pay huge exit fees if they want to move to a better deal and banks have the option of raising the rates at regular intervals.

Last month the Channel 4 Dispatches programme revealed how about 240 local authorities across the UK had taken out about PS15bn of Lobo loans. Most of the loans were taken out between 2003-2011 when council officials believed interest rates would stay high. As base rates have hit rock bottom and stayed low, many authorities have been left counting the cost.

In Wales, data released under the Freedom of Information Act shows that Blaenau Gwent council borrowed PS4m on a Lobo basis in 2004, with the loan due to be repayed by 2054. The initial interest rate was 3.84%, but it now stands at 4.5%.

Bridgend council holds three Lobo loans totalling PS19.25m. Originally the interest rates were 2.1%, 1.3% and 2.7%, but they are all now 4.65%. All three loans are due to mature in 2054.

Caerphilly council has four Lobo loans, each of PS10m with current interest rates of 4.45%.

Cardiff council has eight Lobo loans totalling PS69m, with current interest rates between 3.81% and 4.35%.

Conwy council has three Lobo loans totalling PS15m, with interest rates of up to 4.95%.

Flintshire council has three Lobo loans totalling PS18.95m, with interest rates of up to 4.53%.

Gwynedd council has one Lobo loan of PS16.2m, with an interest rate of 4.22%.

Monmouthshire council has three Lobo loans totalling PS13.6m, with interest rates of 5.03%, 5.04% and 4.6%.

Neath Port Talbot council has five Lobo loans totalling PS62m, with interest rates ranging from 3.725% to 4.09%.

Pembrokeshire council has two Lobo loans totalling PS40m with interest rates of 4.58% and 4.68%.

Powys council has nine Lobo loans totalling PS40m, with current interest rates ranging from 3.77% to 4.75%.

Swansea council has Lobo loans, but refused to disclose details of them.

Torfaen council has 11 Lobo loans totalling PS47.5m with interest rates of up to 11.375%.

Labour MP Clive Betts, who chairs the Local Government and Communities Committee at Westminster, told Dispatches that he wants his committee to investigate Lobo loans and that he would like to explore whether there are grounds to unravel these deals.

He has also called for the Financial Conduct Authority to investigate the behaviour of City firms that offer local authorities specialist financial advice. Evidence has emerged that as well as being paid by councils some of these firms earned commission from City brokers if a council took out a Lobo. A spokesman for Barclays, one of the banks involved in lending Lobo loans, said: "These loans have helped councils build new schools, roads and parks. They are straightforward, fair and easily explained. The average interest rate was about 4.5 %, typically cheaper than the public sector loans available. It is untrue Lobo loans work against the best interest of the local authority." A spokesman for the Welsh Local Government Association said: "Several authorities in Wales have Lobo loans which, in simple terms, are very long-term bank loans where a council initially pays a lower interest rate than on a traditional fixed rate loan.

"The bank has the option to increase the interest rate on preset dates in the future. If the bank exercises its option, councils have the option to repay the loan without penalty.

"These loans are part of a portfolio of differing debt products that form part of local authorities' treasury management strategy.

"This is the subject of an inquiry by Parliament's Local Government and Communities Select Committee which is likely to report in autumn."
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Publication:Western Mail (Cardiff, Wales)
Date:Aug 6, 2015
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