The government must extend the stamp duty holiday or risk seeing the housing market go into sharp reverse next year, according to a leading tax expert.

David Hannah, founder and principal consultant of Cornerstone Tax, is warning the government that if the stamp duty holiday is not extended next March, the UK’s housing market could see a significant decline in activity levels, risking a damaging downturn for the economy.

The stamp duty holiday, which means homebuyers across England and Northern Ireland pay no stamp duty when purchasing homes up to a value of £500,000, has been credited with fuelling a mini-boom in the property market since it was unveiled by the chancellor in July.

According to figures released by HM Revenue and Customs, £1.9bn was raised from stamp duty in the third quarter of the year.

However, the surge in demand has overwhelmed conveyancing, surveying, mortgage and search services, who are struggling to clear a backlog of inquiries. Consequently, 325,000 homebuyers who agree to purchase a property before the end of the year are expected to miss out on the stamp duty holiday.

The end of the holiday on 31 March 2021, also coincides with the end of the furlough programme and several other financial support schemes. This will bring about a cliff edge in demand, at the exact moment when employment and incomes are expected to be suffering most.

Hannah said: “It is critical that the government reviews this stamp duty holiday, and either announces an extension or amends the tax payment date so that homebuyers can still take advantage of the holiday even if they cannot complete by 31st March next year. The most preferable option would be a phasing out of the holiday, to avoid those who are currently in the process of purchasing their properties, essentially being thrown off a cliff-edge.

“Throughout other economic crises, stamp duty changes or relief have historically done very little to get the market moving again and there is no reason why it would help this time around either. It has been and still is a poor tool for managing market behaviour. With low-deposit mortgages almost disappearing altogether, people are having to assess their options.

“The government needs to do more to help get people get on the property ladder – government-backed purchase mortgage guarantees for borrowers would be a great way to reinstall confidence in the lending market. If the term of these guarantees were for five years, for example, the inflation of the housing market during the medium term would wipe off any negative equity on those properties. This would give the market some security again, help buyers, and get the market moving again.”