Thousands of people priced out of the housing market will be offered cut-price home ownership under a new scheme to be launched shortly by the government and banks and building societies.

The initiative between the deputy prime minister and the council of mortgage lenders could mean the creation of a public-private fund worth close to £1bn which will give first-time buyers the chance to own a three-quarter stake - or less - in either a housing association property or a home on the open market.

Initially, £600m will be available through the scheme, under which lenders will keep a 25% or more stake in a property while buyers will take out a conventional mortgage on the remainder, although in time they could increase their holding. When the property is sold, the lenders would retain a percentage of the sale to recoup their stake.

The plan, to be rolled out before a likely general election in May, is one of a series of policies pulled together in a five-year housing strategy unveiled by John Prescott in an attempt to further boost home ownership in England, which has grown by a quarter in 30 years to embrace 70% of households.

Delayed after arguments between the Office of the Deputy Prime Minister and Downing Street over an extension of the Conservative government's right-to-buy policy to include more housing association tenants, the final document, which emerged yesterday, bears all the hallmarks of a compromise between bitterly divided camps.

Now up to 300,000 tenants will be able to take a stake in their property, under a scheme called Social Homebuy, and over time they will be able to buy it outright. This is seen by some as a defeat for the deputy prime minister.

But in a concession to Mr Prescott, if a property is subsequently put up for sale on the open market, the former housing association owners will have to be given first refusal.

This prompted the Conservatives to claim last night that the measure made a mockery of home ownership because an owner would, potentially, be denied the chance of selling to a higher bidder.

In another initiative, the government's regeneration agency English Partnerships (EP) will spend tens of millions of pounds buying 100 former hospital sites from NHS trusts, as well as additional land from the Ministry of Defence and other government departments, with the aim of building more cut-price homes.