Properties costing less than £175,000 will be exempt from stamp duty for the next year in an attempt by the Prime Minister to revive the stagnant housing market and to relaunch his own faltering premiership.

The £600 million measure will take more buyers at the bottom end of the housing market – likely to be first-time purchasers – out of the stamp duty bracket altogether, saving them up to £1,750.

The average UK property cost £164,000 this month, and at present homebuyers paying between £125,000 and £250,000 for a home have to pay 1 per cent of the price to the Government in tax.

Around half a million buyers are expected to benefit from the raised £175,000 threshold, which comes into effect tomorrow. It will not however benefit buyers of properties worth more than £250,000, who will continue to have to pay 3 per cent in stamp duty. Homes above £500,000 attract 4 per cent tax.

Hazel Blears, the Communities Secretary, announced an additional £1 billion housing package, with a mortgage rescue scheme to help 6,000 families in danger of having their homes repossessed, extra funds diverted to provide 5,500 more council houses, and a shared equity scheme to help 10,000 first time buyers get into the housing market. Income Support for mortgage interest is also to be made more widely available from next April.

“Homeowners need to know that we will do everything we can to keep the housing market moving forward," said Gordon Brown today, during a visit to the home of a first-time buyer in West London, who had been helped with a shared equity scheme.

“Help with stamp duty, help for first-time buyers, help to build more social housing, help to take unsold properties off the housing market and help for people who get into difficulties," the Prime Minister continued.

“These are the things a government should do to help us come through what is a difficult situation and show that our economy is resilient and will come through these problems.”

In total, the measures to stimulate the housing market will cost the Treasury £1.6 billion.

The stamp duty holiday is good news for property buyers in the North of England, where prices average £129,700, and for buyers in Yorkshire and Humberside, parts of Wales and Scotland, and the East Midlands, who also will benefit disproportionately.

Few first-time buyers in Inner London, where the average property cost £285,568 last quarter according to Nationwide, will gain from the measure. Nor will those in the South East and South West and East Anglia, where prices are also comparatively high.

The news provided a boost for hard-pressed housebuilders. Shares in Taylor Wimpey, the UK's biggest housebuilder by volume, climbed 10 per cent in early trading to 61.5p, while Persimmon's stock rose 8 per cent.

Some mortgage lenders also welcomed the move. Halifax, the UK's biggest mortgage lender, said: "This is a sensible measure and it will help the housing market."

Other industry spokesmen doubted that the move was enough to give a significant boost to the housing market, in which sales are down 70 per cent and have stalled further amid weeks of rumours of a stamp duty holiday.

Ray Boulger, senior technical manager at the mortgage lender John Charcol, said: "The only good thing about the announcement is that it has cleared the air."

He said that the move risked distorting the middle section of the housing market, and driving some prices down further.

"The gap between the thresholds is now ridiculously small, and I think people will be even more reluctant to pay over the £250,000 mark," said Mr Boulger.

The National Federation of Builders dismissed the Government’s package as being "little more than a political sticking-plaster". Roger Humber, a spokesman, said: "Today’s proposals do not address the core problem, which is the collapse in mortgage availability.

"This is what has triggered the crisis for first-time buyers and led to low levels of housebuilding and rising unemployment in a housing market operating 70 per cent below last year’s level."

Hours before Mr Brown's proposals were announced the pound continued its freefall against the euro in the wake of the Chancellor's dire warnings about the economy.

Sterling slumped against the euro to 81.28p this morning, the lowest level since the single currency was introduced in 1999. It also lost ground against the dollar, falling to a two-year low of $1.79.

Investors are still reeling from comments made by Alistair Darling, who warned last week that Britain faced its biggest economic challenge in 60 years. Business leaders have contradicted the Chancellor's remarks, but they appear to have had their effect in weakening market confidence.

Another factor depressing business confidence is the likelihood that the Bank of England will keep interest rates on hold at five per cent when it announces its interest rate decision on Thursday, despite hopes of a cut.

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