The 1,000 homeowners with mortgages from the London Borough of Lewisham are paying 10.25 per cent and the 350 with loans from the Borough of Islington are paying 10.58 per cent. The Borough of Barnet is charging more than 9 per cent.
Local authorities are obliged under the right-to-buy legislation to make mortgages available to their council house tenants. They must charge the higher of two rates - the average cost of their own borrowing or the 'standard national mortgage rate' stipulated by the Department of the Environment. The standard rate, which is the average charged by the 15 largest building societies, was cut to 8.55 per cent on Tuesday. But because councils such as Lewisham, Islington and Barnet had fixed-rate debts, arranged when interest rates were higher, they cannot pass on the rate reduction.
Even authorities which are borrowing at low rates, such as Mole Valley District Council in Surrey, are hard pressed to match building society charges. Mole Valley is cutting its rate to 8.8 per cent.
When societies charged more than 15 per cent for mortgages in 1990, councils were forced to charge similar rates even if their own borrowing costs were lower.