MOD lost billions after selling and leasing back service family homes, watchdog says

The Ministry of Defence has bought back 36,347 service family homes for £5.99bn, but the National Audit Office says it was £14.5bn worse off than if it had never sold the estate in the first place.

The MOD sold around 55,000 service family accommodation properties to Annington Property Ltd in 1996, then leased many of them back under a long-term agreement.

A NAO report says the arrangement left the department paying rent and retaining responsibility for maintenance, while losing out on the value of homes handed back to Annington and later sold.

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The MOD agreed to buy back 36,347 homes for £5.99bn in December 2024. The transaction formally completed on 9 January 2025.

While the original arrangement was deemed a waste of taxpayers money which the NAO said should remain 'a cautionary tale', the watchdog found that the repurchase was the best-value option available to the department and had prevented further losses.

The MOD was paying around £230m a year in rent to Annington at the time of the buyback. 

The NAO estimates it would have paid a further £10.6bn in rent alone over the next 30 years had the arrangements continued.

Struck under the Conservative government of John Major, the original deal saw the MOD sell the properties for £1.66bn in 1996 before leasing them back on 200-year underleases.

"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," head of the NAO, Gareth Davies 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."

Despite the poor value for money of the arrangement, the report said the MOD did not seriously begin looking at ways to improve it until 2019.

A rent review, followed by a High Court ruling in favour of the MOD's right to enfranchise properties after a legal challenge by Annington, strengthened the department's position before negotiations over the bulk buyback.

The buyback gives the MOD control of an estate that has long been criticised for its condition.

Only 51% of respondents to the 2025 Armed Forces Continuous Attitude Survey said they were satisfied with the quality of their service family accommodation.

The NAO said the MOD had relied on a reactive "fix on fail" approach, carrying out essential work to the minimum safe and legal standard rather than investing in planned maintenance.

The department's Defence Housing Strategy announces £9bn of funding over 10 years. It plans to modernise around nine in 10 defence homes, approximately 43,000 properties by 2035.

But the watchdog warned that the strategy requires the MOD to operate as a property developer, regeneration organisation and housing service, despite lacking much of the experience and expertise needed for those roles.

"Backed by a £9 billion investment, our Defence Housing Strategy will modernise military homes and develop up to 100,000 houses on defence land," an MOD spokesperson said in response to the NAO report.

The department plans to establish a new Defence Housing Service, initially in shadow form from July, ahead of a planned formal launch in April 2027.

"To deliver this expanded programme, the Defence Housing Service will provide the required focus and specialist expertise needed," the MOD spokesperson continued. 

"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."