A UK local authority has invested £15m (€16.5m) in a building society to support local mortgage lending in a ground-breaking deal.

The £2.3bn Cambridgeshire County Council Pension Fund has pledged the investment to the Cambridge Building Society (CBS) to support further growth of the business. Specifically, the money will support lending more to local borrowers and supplying products and services to existing members.

The investment is the first of its kind between a UK building society and local government pension scheme.

The CBS has retained its status as a mutual organisation, owned by its members.

However, in return for the capital injection, the pension fund will receive core capital deferred shares – the only such shares issued by the CBS – entitling it to distributions determined by the CBS board.

The levels of the distributions will be discretionary, taking into account the society’s profitability, business outlook, capital and liquidity position, and its best interests.

Victoria Stubbs, chief risk officer at the CBS, said that while the distribution was “not fixed or not guaranteed in any way”, the board expected to “follow a stable distribution policy equivalent to paying a return of bank base rate plus 5%”.

The shares cannot be redeemed, so the pension fund would have to sell them to a third party if it no longer wished to hold them, although the scheme’s intention is to hold them in perpetuity.

The pension fund would also be entitled to one vote at the annual general meeting, the same as each individual member of the society.

The CBS said that, in practical terms, the investment would enable 1,000 local families to buy homes over the next two years.

Councillor Roger Hickford, chairman of the pension scheme, said: “The Cambridgeshire County Council Pension Fund welcomes the opportunity to invest in a long-established Cambridge-based business and in supporting local people in buying local homes. We applaud the [CBS] on this innovative share issue, which will provide a stable and attractive investment return for our pension fund members.”