ANOTHER council in Worcester has taken out a loan linked to a national TV investigation over risky bank lending, it has emerged.

Worcester City Council took out £5 million back in 2004 under a controversial mortgage-style LOBO loan, a borrowing tactic which has sparked calls for a parliamentary investigation.

As your Worcester News revealed yesterday, Worcestershire County Council has taken out £70 million of the loans, which have been heavily criticised for locking local authorities into 40, 50, or 60 year terms with interest rates as high as seven per cent or more.

Councils face massive exit penalties for trying to leave early, and banks have the power to regularly change the interest rate on each loan or ask that it be repaid immediately.

Documents back to November 2009 reveal how the city council agreed a LOBO loan back in December 2004, for £5 million which will last until December 2054.

The interest rate was 3.4 per cent for the first five years and then went to 4.5 per cent, with the lender, German-based Dresdner Bank able to change it every six months.

The city council can take the option of paying it all off at the old rate if the bank decides to go for a change, although we understand finance chiefs at the Guildhall consider the deal an acceptable one and have no concerns over it.

The loan was taken out to shore up the council's finances 11 years ago after the creation of the old Worcester Community Housing association, which resulted in a huge restructure at the time.

District councils in Wychavon and Malvern have not taken out any LOBO loans, which were extremely popular during the last decade when councils believed the base rate would remain high, only for it to since hit rock bottom.

It comes as fresh questions are being asked of Worcestershire County Council, which has refused to reveal what interest rates it is paying on its hefty LOBO deals.

It took out six different LOBO loans, for either £10 million or £20 million, between 2003 and 2006, the last one of which won't be settled until 2066.

A Freedom of Information Act request has led to the council declining to reveal the interest rates, saying they are commercially sensitive.

Councillor Peter McDonald, opposition Labour group leader, said: "People deserve to know where the money is going, why can't they just tell us?"

The county council says LOBO deals account for just one fifth of its total borrowing, and that the average repayments for all its loans is 4.3 per cent.

Councillor Adrian Hardman, the leader, said: "I am happy that our portfolio provides value for money and the council's exposure to the risk of fluctuating interest rates are protected.

"At the time that the investments were required to improve roads, education and other services, these loans represented the best value for money."

During Channel 4's Dispatches programme last night banks were severely criticised for the LOBO deals.

Investigators also found some third party brokers were getting commission from the City of London to encourage councils to take them out, leading to calls for MPs to now investigate.

Around 240 UK councils have taken them out, totalling £15 billion in borrowing.

* To see our special report into the county council's LOBO loans click HERE.