TWO councils in Dorset have taken out millions of pounds of controversial high risk bank loans.

Figures from campaign group Debt Resistance UK reveal that Dorset County Council and Weymouth and Portland Borough Council have taken out £123 million worth of high-interest Lender Option Borrower Option loans (LOBOs), which were highlighted in Channel 4's Dispatches programme last year.

Dorset County Council took out £95.9m while Weymouth and Portland Borough Council took £27m as of the end of the 2015/16 financial year.

West Dorset District Council and Purbeck District Council did not take out LOBOs.

LOBOs were taken by councils prior to the financial crisis and provided councils with a 'cheap source of financing with low teaser rates'.

The interest rate is initially fixed however unlike Public Works Loan Board loans which are government run, private banks have the option to propose or impose – on pre-determined future dates such as every five years – a new fixed rate.

The borrower has the option to either accept the new rate or repay the entire loan – meaning civic chiefs will be forced to pay a 'breakage penalty' in return.

Abhishek Sachdev from Vedata Hedge Fund Advisory said the loans "contained huge quantifiable risk at the outset".

James Price, campaign manager at the TaxPayers' Alliance, said: "It seems remarkable that after decades of council tax hikes across the country in the past 20 years, councils can find themselves in such difficulties.

A spokesman for the Local Government Association said LOBOs were a "legitimate financial instrument" and was one of a range of council borrowing methods.

They said the loans should be viewed in "in the context of a council's entire debt profile" and "not on the basis of hindsight".