The stamp duty holiday on home purchases ends at the new year, but did it work? And if it did, should it be extended?

The concession on the tax on buying homes has already been extended once. The one-year holiday should have ended in September 2009 but was continued until 31 December, allowing homes under £175,000 to be bought tax-free. From 2010 only properties priced at below £125,000 will escape the tax, with the 1 per cent levy applying at that threshold and increasing to 3 per cent at £250,000 and 4 per cent at  £500,000.

When the holiday was announced in 2008, £175,000 was about the average price of a property in the UK, so the tax-free concession should have helped most buyers. And as market prices fell to around £150,000, even more buyers benefited.

The stamp duty holiday may not have worked so evidently as the scrappage scheme for new cars, but the number of mortgages granted and sales agreed has doubled and the steady fall in house prices has turned into a steady increase. Actual mortgage lending has risen even further as banks advance a larger proportion of value too.  The average sale price in Britain is now roughly back to that £175,000 tax threshold.

If that is not definite evidence of the tax holiday working, at least the concession co-incided with the turn in the market. But sales volumes remain well below historic levels and the cost to the Treasury of forgoing this tax has thus been far below the £600m estimate.

So should the chancellor extend the holiday – if only to use up the sum he budgeted for?

No. Even if waiving stamp duty for lower prices properties did stimulate sales and prices, the market has its own momentum and can recover without the chancellor’s aid. If estate agents had plastered their windows at the end of 2009 with posters saying “Buy now before tax rises” they might have generated some sales but evidence suggests that the housing market is little affected by the tax on purchases, especially at the lower end with its lower tax rates.

A 1 per cent upfront cash payment was a lot for buyers with a 90 per cent mortgage who were finding only 10 per cent of the price from their own resources – enormous for people with 100 per cent loans – but the market does not seem that sensitive. For people purchasing now with a 75 per cent loan, the tax seems a small addition to the 25 per cent they must find, even if their total contribution has escalated sharply.

Governments have been slow to increase the stamp duty thresholds in line with rising property prices – the starting point was still £60,000 as recently as 2005 – and Gordon Brown twice raised the rates in his early days as chancellor to try to dampen the nascent housing boom. But despite doubling the maximum rate, that boom became a bubble which stamp duty failed to deflate.

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