Barclays has become the first bank to scrap high interest Lender Option, Borrower Option (LOBO) loans for councils.
The move will see more than 100 LOBO loans - thought to be worth around £8bn - converted into fixed-rate loans.
A spokesperson for Barclays said: ‘Under the changes Barclays is permanently waiving its '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.’
Overall, around 240 local authorities have taken up to £15bn in LOBO loans from private banks, which charge interest rates of more than 7% in some cases.
To date, residents from 24 different local authorities have mounted legal objections to their use, claiming the loans are ‘irrational’ expenditure and therefore unlawful.
The spokesperson added: ‘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. 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.’