The Ministry of Defence (MoD) is set to buy back thousands of military homes in a deal it says will save millions in rent and maintenance costs.

The MoD will acquire 36,347 houses from property company Annington Homes for alost £6bn, reversing a privatisation deal struck in 1996.

MPs have previously warned damp and mouldy accommodation could see more personnel deciding to leave the military unless improvements are made.

The Defence Secretary, John Healy, describes the announcement as a “decisive break” with the failed approach of the past, which will enable the first steps to be taken to fix the long-term decline in housing for military families and deliver homes fit for heroes. He will also commit to using the deal to help achieve the government’s milestones on kickstarting economic growth and boosting housebuilding across the country.

The deal is part of the Government’s drive to boost military morale, tackle recruitment and retention challenges and renew the nation’s contract with those who serve.

The MOD, supported by UK Government Investments, and Annington have formally agreed that the MOD will reacquire the service family estate sold in 1996, which is now valued at £10.1 billion when not subject to leases, and is being purchased for £5,994,500,000, representing excellent value for money.

The new deal will see the immediate saving of more than £600,000 of taxpayers’ money each day, with the current annual bill of £230 million in rent being eliminated. These savings to the defence budget will help to fix “deep-set problems” in military housing, and support the development of a high-quality new homes for military families.

The announcement comes as the Government kickstarts work on a new military housing strategy, to be published next year. Key principles of the strategy will include: a generational renewal of Armed Forces accommodation; new opportunities for forces homeownership; and better use of MOD land to support the delivery of affordable homes for families across Britain.

The first steps in the strategy will include the rapid development of an action plan to deliver on the “once in a generation” opportunities unlocked by today’s deal. This work will involve independent experts, forces families and cross-government input.

This will support the Government’s Plan for Change, which is built on the strong foundation of national security. It also comes alongside the Prime Minister’s Homes for Heroes pledge to exempt veterans from rules requiring a connection to a local area before accessing social housing.

Healy said: “This deal shows our government is determined to deliver homes fit for our heroes. This is a once in a generation opportunity, not only to fix the dire state of military housing but to help drive forward our economic growth mission, creating jobs and boosting British housebuilding.

“Our armed forces and their families make extraordinary sacrifices: theirs is the ultimate public service. It is shameful that in the lead up to Christmas, too many military families will be living with damp, mould and sub-standard homes – issues which have built up over the past decade.

“We are determined to turn this around and renew the nation’s contract with those who serve. These important savings to the defence budget will help fix the deep-set problems we inherited. I thank the teams who have helped us reach this landmark deal at pace – another example of this government delivering for defence.

“There is still a lot of work to do to deliver the homes our military families deserve, and these problems will not be fixed overnight. But this is a decisive break with the failed approach of the past and a major step forward on that journey.”

Chief Secretary to the Treasury, Darren Jones, commented: “This is a landmark deal that will start saving the taxpayer money immediately, all while driving forward our mission to create growth across the country. 

“Not only does it open the door to major development and improvements across the military housing estate, but most important of all, it will help us on our mission to build more houses and deliver our service personnel the homes they deserve.

The original agreement did not strike an appropriate balance of risk and reward, and it is estimated the taxpayer is nearly £8 billion worse off as a result. Money which should have been better spent on maintaining and improving our service family homes.

Eliminating the liabilities associated with the leases creates budgetary headroom to partially fund this purchase, meaning that the public expenditure impact of this measure, and the impact on net financial debt, is confined to £1.7 billion.

The 1996 sale saw 55,000 houses sold for an average of just £27,000 each property. In buying these houses back, the government will control properties worth almost ten times that average value and will no longer be paying £230 million annually in rent.