Government set to guarantee Olympic village loan

The Olympic Delivery Authority (ODA) is set to bail out the troubled £1bn London 2012 Olympic village project by offering government-backed guarantees to banks willing to fund the scheme.

The Australian property developer Lend Lease had agreed to fund the construction of the village in exchange for taking the profits on apartment sales after 2012. However, Lend Lease could not secure bank funding because of the credit crunch and the worsening property market.

A source close to the ODA said that the authority's preferred option is to provide government guarantees to repay the loans should Lend Lease be unable to so. "That's the way it's going. The ODA is aiming to have a new heads of terms agreement with Lend Lease in place by the end of July," added the source.

The ODA is still likely to have to draw on some of its £2bn contingency funding to pump equity into the scheme. Olympic mandarins have already committed £200m to improving infrastructure surrounding the site, though Lend Lease has privately argued that the necessary expenditure is closer to £400m.

John Armitt, ODA chairman, said that should any public funding be necessary, the Government would share future property sale receipts with Lend Lease. "To the extent we end up providing [financial] support, we will gain influence on the scheme," Mr Armitt added.

Another option under discussion is for the entire nature of the village build contract to change. Instead of developing and then in effect loaning the village to the ODA, Lend Lease could be asked simply to build the project on the Government's behalf. This would mean that the project would be entirely public funded.