The Ministry of Defence’s decision to sell off 55,000 service-family homes and lease them back from a property firm cost the public purse £14.5bn over the course of three decades, a new report from the National Audit Office has found.
The deal with Annington Property Ltd, struck in 1996 under the Conservative administration of John Major, was exited by the current government in 2024 with a buy-back of more than 36,000 homes at a cost of £5.99bn.
According to public-spending watchdog the NAO, the MoD’s latest move should save the department from having to spend a further £10.9bn on renting the properties over the next 30 years – the default position without 2024’s deal.
However, the NAO warns that the MoD’s new housing strategy, which involves creating a new Defence Housing Service responsible for modernising service family homes and developing 100,000 new units on government land, has its own significant risks.
The shortcomings of the MoD’s 1996 deal with Annington have long been acknowledged. In 2018, the then chair of parliament’s Public Accounts Committee described the leaseback arrangement as an “appalling deal” that had cost taxpayers billions over the years.
A 2018 NAO report on the original leaseback agreement found it had been “a great deal for the landlord”, giving Annington an annual return estimated at 13.4% to the end of March 2017. The NAO said the MoD had based its decision to proceed with the deal on “proposed policy benefits” such as releasing money to upgrade the estate and incentivising the department to dispose of properties faster, but those objectives were only met in part.
Today’s NAO report is the first time the £14.5bn figure has been cited as the cost to government coffers. Previous estimates merely referred to partial costs in the single billions. The £14.5bn equates to around half of the defence-spending funding gap the MoD is believed to be facing over the next four years. John Healey resigned as defence secretary earlier this month, criticising HM Treasury’s unwillingness to commit appropriate funding to the MoD.
The latest NAO report acknowledges that the buy-back deal agreed with Annington, which was achieved with the help of UK Government Investments, was the best option available to the MoD and handled “effectively”. But it stresses that the department faces “huge” challenges with its Defence Housing Strategy alone, principally because it lacks necessary expertise and capacity.
The Defence Housing Service is due to be established as a non-departmental public body from April next year, subject to the armed forces bill passing into law. It is due to launch in shadow form next month, backed by £9bn in funding set out in November 2025’s housing strategy.
The strategy aims to modernise some 43,000 service-family homes by 2035 – approximately 90% of the estate. Additionally, surplus MoD land will be used to develop 100,000 new homes, with receipts ploughed into improving service-family properties.
“The nature and scale of the challenge facing the MoD are huge,” the NAO report warns. “The strategy requires the Defence Housing Service to operate as a property developer, a regeneration organisation, and a housing support service. The MoD currently has little experience or expertise in these roles.
“The MoD’s preference for the Defence Housing Service to become an NDPB with a development arm is partly driven by its assessment that it is the model which provides flexibility to recruit the required expertise and the commercial flexibility to partner with other organisations in, for example, joint ventures or development corporations.”
The report recommends that the MoD should look to learn from others in government about the different models for bringing in the private finance and private sector expertise required to deliver its plans for the Defence Housing Service.
It says the department should seek to understand the benefits and risks of the different approaches and also finalise its long-term funding plans for the defence housing estate.
NAO head Gareth Davies said buying back service-family housing from Annington clearly represented value for money in comparison with continuing with the previous arrangements.
“Repurchasing MoD’s service family accommodation has avoided further lost value and now provides the opportunity to deliver the ambitions of the Defence Housing Strategy,” he said. “The MoD’s experience remains a cautionary tale about the risks to long-term value for money that are inherent in sale and leaseback transactions.”
Sir Geoffrey Clifton-Brown, chair of parliament’s Public Accounts Committee, said the NAO report laid bare the effect an “ill-conceived deal” could have for taxpayers over the course of many years.
“It stands as a stark warning to government on the risks of selling critical assets to address short-term affordability concerns, without due consideration of the consequences in the decades to come,” he said.
“While the 2024 repurchase finally draws a line under this sorry saga and stops the haemorrhaging of public money, it must mark a turning point. The Ministry of Defence now has both the incentive and the opportunity to deliver the decent homes service families deserve. The £9bn Defence Housing Strategy will make or break value for money, and will prove essential in strengthening recruitment and retention across the armed forces.”
An MoD spokesperson said: “Repurchasing the service family accommodation estate puts a stop to billions of pounds of further lost value and brings more than 36,000 homes back into public hands.
“Backed by a £9bn investment, our Defence Housing Strategy will modernise military homes and develop up to 100,000 houses on defence land.
“To deliver this expanded programme, the Defence Housing Service will provide the required focus and specialist expertise needed. We are already delivering on our mission, with 1,250 homes upgraded over the past year and another 2,000 to be improved over the next 12 months.”