YORK City’s dream of a new stadium is a step closer after the club struck a crucial deal over the repayment of its Football Foundation loan.

Minstermen chiefs say the agreement will safeguard the club’s future and allow attention to focus on finding a site for a community stadium, which will be home both to the football club and York City Knights.

Although the club says it cannot reveal details of what it has shaken hands on, The Press understands the deal will, for now, allow it to stop making repayments on its £2 million loan from the Foundation – a financial millstone around its neck in recent years – while the quest to build a new ground continues.

Instead, the interest on the loan will be rolled up and the full outstanding amount repaid once City’s current KitKat Crescent home is sold. Until now, repayments have been costing City around £130,000 a year.

It also means City of York Council will not need to take over responsibility for repaying the loan, having proposed lending the club £2.1 million earlier this year before putting this on hold due to City’s negotiations with the Foundation.

In a statement, City’s board said: “York City Football Club is pleased to announce that, through the efforts of the board and with the assistance of City of York Council and Hugh Bayley MP, an agreement has been reached with the Football Stadia Improvement Fund (FSIF).

“It will enable the club to meet its financial obligations under the loan provided by the FSIF and make significant progress towards the provision of a new community stadium for the city of York by 2012.

“The agreement has secured a stable future for the football club and is a major step forward in our pursuit of new, improved spectator facilities for professional sport in the city, with a strong community focus for the benefit of the people of York.”

Council leader Andrew Waller said: “This assists with the continuity of the football club and helps the council because it means we can now concentrate on moving the community stadium forward.

“It also takes away the uncertainty of the way in which other parties would have voted on a council loan to the club when this went before the full council, as it is not now necessary for this loan to be made.

“It’s good news all round and we can now focus our full efforts on developing a community stadium, which is one of this council’s commitments.”

He said he hoped a project manager for the stadium scheme – whose remit will be to find a site for the ground, draw up a business case and deliver it by 2012 – “within weeks”.

Mr Bayley, who raised City’s case with Culture, Media and Sport Secretary Andy Burnham, said: “It’s very important for York to have a professional football club – it attracts visitors to the city and puts York’s name in the public mind.

“It’s good for the city’s image and for tourism, so I’m strongly behind the club’s ambition to build a new 21st Century stadium and I want to help it achieve that ambition. I’m glad they have reached this agreement, which puts the club on a firmer financial footing and will help it make progress on a new stadium.”

The Football Foundation was unavailable for comment.