John Prescott has announced an overhaul of a £250 million scheme to help public sector workers buy their own homes.

The deputy prime minister was visiting Sutton in Surrey on Tuesday to examine a housing project for key workers.

He offered a fresh cash advance for nurses, teachers and other public sector employees after discovering that less than half the initial money for the Starter Home Initiative had been spent.

The plan, originally unveiled by Prescott's former Cabinet colleague Stephen Byers, promised 11,000 workers a first foot on the housing ladder through low interest loans by March 2004.

But with three quarters of the time towards that target having elapsed only 3300 workers have taken up the offer at a cost of £100 million.

Prescott promised to double the limit available to staff outside London to £20,000 and an advertising campaign to encourage take up of the scheme.

The larger loans could cut the number of beneficiaries of the scheme but the remaining £150 million cannot be spent after April next year.

The government's vision of affordable South East housing has been undermined by increasing property prices and a failure to promote the scheme.

Ministers fear that a lack of available homes within a commutable distance to central London will drive essential workers away the region, hampering efforts to increase staff numbers in schools and hospitals.

"We want every teacher, health worker and the police in London and the South East to know that funding is available to help them into homeownership if they want to go down this route," Prescott said.

"The regional campaign will target key workers, their families and communities, helping to spread the word about Starter Home Initiative.

"We are investing at least £1 billion over three years to provide new key worker homes, and under the Starter Home Initiative scheme especially, all house purchases and final exchange must be made by March 2004.

"So I urge key workers who are thinking of purchasing a home of their own to apply for funding now."

The Conservatives said the need to re-announce the scheme demonstrated Labour's "over-hyping" of initiatives.

"We have already seen the failure of anti-social behaviour orders, child curfew orders and night courts," shadow deputy prime minister David Davis said.

"This is yet another example of a high-profile initiative that has lost its way after much government hype."