The aim is to build a house for sale for £60,000 in London and the south-east. This will be done by EP continuing to own the sites, thus removing the land element from the final price - and saving around £40,000 on each property.

But the hard-pressed agency will have to carry these "write down" costs and fears are growing that many of its other projects in the north and the midlands will either be scrapped or delayed.

Announcing a competition among builders and designers to provide the £60,000 house, Mr Prescott told the Commons that he hoped his "first-time buyer initiative" would be extended from government-owned land to private holdings.

"I want to encourage other public and private landowners, in urban and rural areas, to use their land for new affordable housing," he said. "Separating the cost of land and the cost of construction will be a big help to driving down prices for the buyer."

Elsewhere, the strategy -Homes for All - underlines the government's commitment to provide 200,000 extra homes in London and the south-east, increasing the total to 1.1m by 2016.

Ominously for countryside campaigners, a fifth growth area - south Hampshire, between Portsmouth and Southampton - has been added to four areas (Stansted, Milton Keynes, the Thames Gateway corridor, and Ashford) already earmarked for expansion.

Housing minister Keith Hill denied that the strategy was "south-east-centric" - on the grounds that the government was extending a £1.2bn housing market renewal programme in depressed northern neighbourhoods to three new areas.

The new public-private fund involving mortgage lenders, which will be announced shortly, builds on a little-known government scheme launched in 1999, which has so far helped 10,000 people onto the housing ladder. Under this, £300m annually is now made available annually to help housing association tenants and, more recently, key workers such as nurses and teachers.

But Peter Williams, deputy director general of the Council of Mortgage Lenders, complained yesterday that it had been largely "hidden away", with most people unaware of its existence. He said they had been in talks for two months with Mr Prescott's department with the aim of doubling the size of the scheme to cover up to 12,000 people annually.

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