MoD loses billions of pounds after selling military housing, NAO finds

30 Jan 18

The Ministry of Defence has lost out on up to £4.2bn after it sold 55,000 homes to a private company, the National Audit Office has found.

Had the MoD retained the housing stock, due to the property price boom, it would have stood to gain between £2.2 billion and £4.2 billion, the watchdog concluded in a report out today.

The MoD sold the homes, used to house members of the armed forces, to Annington Property Limited, in a deal worth £1.6 billion in 1996.

Since then, the MoD has been renting the homes back from Annington in a deal that is set to be renegotiated in 2021.

Amyas Morse, head of the National Audit Office, said today: “The department carried out a sale and leaseback deal almost twenty years ago, based upon pessimistic views of the future growth in property values, but with the mitigating feature that the rents charged to the military families who lived there were restricted for the first twenty years.

“This has cost the public sector a great deal in capital growth, and it has been a great deal for the landlord.”

When the current agreement ends in 2021 Annington Homes is expected to demand a huge increase in rent.

Currently, the MoD pays £178m a year in rent, with a discount rate of 58%, but this could rise by £250m a year when the current deal ends.

On top of this, the Annington properties have had relatively low occupancy rates over the years since the deal with an average vacancy rate of 19%.

The department’s business case model assumed house prices would increase by 1% per year, excluding inflation. In reality, the rise in house prices was 3.9%. 

An MoD spokesperson said: “The NAO supported the Annington deal in 1997 and is clear that the surge in house prices could not have been predicted.

“We have a team working on renegotiating the deal, and believe that rent prices should continue to fall to secure value for money for taxpayers.”

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