Newham LBC has agreed to scrap its controversial lender option borrower option (LOBO) loans with Barclays.

The council said it hoped to save up to £94m by switching to normal fixed rate borrowing.

Under the new financial agreement with a major high street bank, the council expects to save up to £1.6m per year on interest payments over a 60-year period. 

The deal will also exterminate the threat of Barclays changing the interest rate levels at regular intervals over the remaining lifetime of the loans.  

An investigation in 2015 found 240 councils were persuaded to take out £15bn in high interest loans amid claims officers in local government did not understand the risks involved. 

Newham's cabinet member for finance, Cllr Lester Hudson, said: ‘We took out these types of LOBOs as they represented the best deal for the council at the time and have saved us millions of pounds in interest payments. 

‘They were part of our balanced and award-winning strategy, which includes a balanced approach to risk.

‘As a council and in line with good stewardship, we are always working to reduce the cost of our borrowing. 

‘We have taken independent legal and financial advice on this agreement and it is now the right time for us to restructure these loans.'

Newham's move has been welcomed by pressure group Debt Resistance UK, but campaigner Ludovica Rogers said: ‘Until Newham LBC puts the terms of this deal negotiated in secret into the public realm we can't comment in particular on loan breakage costs, interest rates and loan restructuring fees.'