Cash-strapped Carlisle City Council is squandering more than £500,000 a year because it is locked into a fixed-interest loan.
The £15 million loan was taken out in 1995 at an interest rate of 8.75 per cent fixed for 25 years. It appeared to be a good deal at the time. But plummeting interest rates mean the council now pays way over the odds.
The annual interest payment is more than £1.3m. If the authority took out the same loan today, payments would be £772,500 – more than £500,000-a-year less. It cannot get out of the arrangement.
The council’s next problem is how to repay the £15m when the loan matures in 2020.
But Labour’s Cyril Weber, who was a councillor at the time, defended the loan. It was taken out to fund capital spending including the regeneration of Raffles. Mr Weber said: “Hindsight is a wonderful thing. At the time it was an attractive offer.
My comment: You don't need hindsight to act in a prudent manner. An interest only loan, 25 Years at £1,312,500 = £32,812,500 plus the original £15,000,000 to repay in 2020 = £47,812,500 total without a prudent get out clause. That works out at £1,912,500 a year for a £15,000,000 loan.
As an amusing aside whilst Googling Raffles, to see if the money had been well spent I came across the following 2004 entry on Chavtowns about Carlisle which mentions the Raffles estate ["With plenty of boarded up housing on the Raffles estate"]. So if the post was correct and houses were boarded up, 9 years after the loan was taken out, was it money well spent?
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