We received some good news recently; Barclays Bank PLC has agreed to waive the option of increasing interest rates on a set of LOBO loans taken out by housing associations in the wake of the financial crisis. This news comes as a direct result of the investigations led by Vedanta Hedging and Debt Resistance UK in a Channel 4 ‘Dispatches’ documentary which looked into these controversial bank loans. You can find more information and a recording of the episode here.
This is good news as a step in the right direction because Barclays realises that these were unfair and inappropriate contract terms, and decided to remove them rather than face potential litigation regarding these derivatives. This shows the power of campaigning on this issue by Vedanta Hedging, Debt Resistance UK and others. The important question remains why Barclays though that these were appropriate in the first instance!
LOBOs are very complex, long-term loans which contain embedded derivatives. Abhishek Sachdev of Vedanta Hedging also gave live evidence on this important issue to the Communities and Local Government Select Committee – which you can view here
In the released statement, Barclays was quoted as saying;
“Over a hundred local authorities and housing associations will benefit from greater certainty that their borrowing costs will not rise in future. They will also enjoy reduced break costs than there would have been had Barclays retained its right to change the interest rate. Also they will know that 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.“
Want to read more about Barclays Bank waiving the right to increase interest rates on LOBO loans? Then click here.