Locals increase lending to business and residents

Bournemouth is joining the growing number of councils who are lending money to local businesses and residents.

The council is working on plans to offer both business loans to small and medium sized local enterprises and mortgages to individuals.

Cllr John Beesley, Leader of Bournemouth Council, said: “We liaise regularly with businesses and work with our local Chamber of Trade and they are collectively telling us that the town’s economic prosperity would be enhanced if borrowing was easier. We have the ability to make this happen.”

Many families, couples and individuals on middle incomes struggle to get on the housing ladder. Beesley added: “They can afford a mortgage and prove their ability to repay it, but current commercial lending conditions and the rising cost of living makes it impossible for many to either gain the equity or deposit needed to be eligible for a mortgage, or to afford the high interest rates applied to those without a significant deposit or equity.  We plan to offer affordable financing to local people to help them buy their own homes.”

Bournemouth’s move follows the announcement from Shropshire at the beginning of the month that it was creating a council loan fund for local businesses unable to access high street lending. Private partner Impetus will administrate the scheme.

A spokesperson for the council told Room 151:  “The rate of interest on the loans will be variable but not exceed 14%. Impetus will derive income from the interest charged, but this is just likely to cover the costs of running the fund. With the loan fund addressing market failure, i.e. lending to businesses that have been declined by high street banks, the council is anticipating no return on the investment over that which Impetus need to run the scheme.”

And in March Sandwell Council said it was working on a mortgage scheme for residents. Local authorities are permitted to offer mortgages under the Housing Act 1985 and the Localism Act has increased councils’ capacity to lend.

Mark Horsfield, founding director of Arlingclose, the treasury management consultancy said: “There are economic development considerations that can conflict with treasury management considerations in a similar way to the treasury management characteristics associated with Local Authority Mortgage Schemes.”

Authorities offering loans services to business and individuals would presumably take a view on the treasury management implications of doing so in terms of approved investment strategy, said Horsfield. “Potentially, it may be a departure from more normal activity that would rank as a non-specified investment and/or capital expenditure.”