Construction expected to be under way before agreement is reached with Lend Lease

A funding agreement on the Olympic athletes' village is now unlikely to be reached until next year, well after construction begins.

The government had hoped to broker a deal with developer Lend Lease on the funding for the £1bn athletes' village before Christmas, but it now expects negotiations to extend into 2009.

Tessa Jowell, the Olympics minister, said: “Due to the current situation in the markets it is now likely that these negotiations will run into next year. Our priorities are to secure value for public money.”

Lend Lease has been unable to borrow money to pay for their £650m contribution to the village, and the Olympic Delivery Authority (ODA) has been forced to dig into its contingency fund to pay for the early stages of construction.

The ODA has already accessed £95m of contingency funding. This is expected to rise to at least £250m, depending on how much equity Lend Lease can secure.

Building the London 2012 Olympics