Stamp duty is to be suspended on homes worth £175,000 or less for a year as part of a package to revive the housing market, the Chancellor has announced.

The move will raise the threshold on which 1% stamp duty is paid from its current level of £125,000.

The change, which comes into effect for 12 months from September 3, will save eligible home-buyers up to £1,750 when they purchase a property, and relates only to buildings entirely for residential use.

In a statement, the Treasury said: "The Chancellor of the Exchequer has announced that stamp duty land tax will not apply to purchases of residential property of £175,000 or less.

"This will provide an exemption from stamp duty land tax for land transactions consisting entirely of residential property where the chargeable consideration is not more than £175,000.

"This relief will apply to transactions with an effective date on or after September 3 and before September 3, 2009."

The Treasury estimates that the one-year stamp duty freeze will cost the Government £600 million - suggesting that it expects about half a million home-buyers to benefit from the change.

The plan for a stamp duty freeze first emerged last month but was met by official silence - leading to claims that the housing market had been paralysed by dithering between the Treasury and Downing Street.

The announcement came as Communities Secretary Hazel Blears unveiled a further package of measures to revive the housing market, including help for first-time home-buyers and people at risk of repossession.

A mortgage rescue scheme will allow those facing repossession to sell their home to a registered social landlord (RSL), who will clear the mortgage and then rent it back to them at a level they can afford. In some cases, the RSL could buy a share in the property, or provide an equity loan to help reduce the homeowner's mortgage repayments.

Under the new HomeBuy Direct scheme, first-time buyers with a household income under £60,000 will be able to buy newly-built properties with a free-of-charge equity loan of up to 30% of the property's value, co-funded by the Government and the developer.

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