NHS staff could each save nearly £700 a year by living in cut-price, modern accommodation planned for the biggest housing development ever tackled by Oxfordshire's hospitals.

The Oxford Radcliffe Hospitals NHS Trust is about to sign a £10m deal to update and rebuild 871 nurses' homes at its sites in Oxford and Banbury, where current conditions have been described as poor.

Nurses and other health workers, who often struggle to pay the county's high living costs, will be charged 20 per cent less rent than normal market prices - which could mean savings of up to £55 a month.

The move has been praised by nurses' union the Royal College of Nursing.

The trust is signing over its housing stock to specialist housing association Apex Housing Group, which will be responsible for the buildings and tenants for 30 years.

As part of the lease arrangement, 120 units at Chartwell Flats, at the Churchill Hospital, in Headington, Oxford, will be bulldozed and replaced with nearly double the amount of modern accommodation.

Each flat will have en-suite bedrooms, and it is thought they will be shared by a maximum of four people. Another 12 flats will be tailored for couples. Arthur Sanctuary House and Ivy Lane Flats at the nearby John Radcliffe Hospital, and Nuffield House, at The Horton Hospital, Banbury, will be refurbished or upgraded.

ORH liaison and development manager Elaine Foster said: "Staff rightly have higher expectations these days.

"This will offer a mix of accommodation. It's not going to be higher rent - we aim to be about 20 per cent below the market rate - and there will be a choice."

As part of the deal with Apex, ORH staff will have first refusal on the new housing, followed by workers from other health care organisations in Oxfordshire and Oxford University.

Tenants could save about £55 a month, because, according to Oxford letting agent The Letting Shop, the average price of a four bedroom house or flat in Headington is about £1,100 a month, or £275 per person.

Apex Housing Group said it could not comment until final contracts had been signed in the next couple of months.