The National Audit Office (NAO) has repeatedly criticised the original deal, saying the MoD had dramatically underestimated how much the value of the homes would rise.

The spending watchdog in 2018 estimated that the properties would have been worth as much as £4.2bn more if the Government had held on to them. Annington Homes values them at about £7.6bn. 

Meanwhile, the MoD has been saddled with huge costs for both rent and maintenance, for which it retained responsibility, while largely failing to deliver improvements to the accommodation that were originally promised.

It leases the homes from Annington for about £183m a year, a figure that is set to increase by another £36m following a recent review. Another £140m per year goes towards repairs, maintenance and upgrades.

In a written statement to Parliament, Jeremy Quin, the defence procurement minister, said the MoD was now exploring whether it could use the leasehold enfranchisement system, under which a leaseholder can acquire the freehold of their property, to “buy out Annington’s interest in the homes and gain full ownership rights”. 

The department has started with a single claim on the Cranwell house and intended to submit another one “in the near future”.

If those efforts prove successful, with the price agreed in a settlement or through tribunal, it could seek to acquire the entire Annington portfolio via the same method.

Mr Quin said this decision would hinge on whether the total cost was found to be lower than the MoD’s predicted future liabilities under the leasehold arrangement. 

“If the cost of recovering full ownership of the units from Annington is less than the present value of MoD’s ongoing liabilities, such a transaction is likely to represent good value for money,” he said. “The MoD would then benefit from any future appreciation in value of the units.”

The Government’s move creates a potential headache for Mr Hands, who is reportedly seeking to find a buyer for Annington Homes. The company is said to have been valued at £9bn.