Martin Lewis warns that the stamp duty holiday extension could end up costing homebuyers thousands

Is the much-publicised stamp duty holiday extension really going to help more buyers onto the property ladder? This is one of the questions Martin Lewis, of Money Saving Expert fame, had for Chancellor Rishi Sunak in an exclusive interview for The Martin Lewis Money Show.

Related: The stamp duty holiday has been extended - Here's everything we know

Martin Lewis grilled the Chancellor over taxation, furlough, universal credit, and the two biggest housing-related announcements in the budget: the extension to the stamp duty holiday and the introduction of a government mortgage guarantee that should allow mortgage lenders to approve more 95-per-cent loans.

While Lewis praised the Chancellor for many of the measures introduced to help people struggling financially during the pandemic, he warned that the new property measures could end up costing homebuyers thousands by inflating house prices.

Is the stamp duty holiday extension inflating house prices?

Martin Lewis asked the Chancellor 'are you really helping struggling first-time buyers, or are you just stoking the house price market?' The money-saving expert presented compelling figures, namely the average house price, which is now £269,000 as opposed to £252,000 before the stamp duty holiday – a substantial increase of £17,000.

'The stamp duty saving on that is £2,6000; over the lifetime of a mortgage someone is paying £27,000 more,' he pointed out, exposing that in the long term many home buyers won't actually benefit from the tax break. In fact, they will end up paying more due to house price inflation.

Lewis is not the first to warn that extending the stamp duty holiday will mainly lead to further house price increases without benefiting buyers. The Conveyancing Association, the Society of Licensed Conveyancers and the conveyancing network Bold Legal Group wrote a letter to the Chancellor in late February warning that the stamp duty holiday extension would put further pressure on an already overloaded property market – and push prices up further.

HomeOwners Alliance Chief Executive Paula Higgins said that 'while we support the extension and the tapering of the scheme, consumers should be careful not to see the stamp duty holiday as providing big savings, as house price increases may wipe out any gains.'

In the interview, Rishi Sunak explained 'over half a billion jobs are supported by the housing sector', and that increased activity in the housing market has protected those jobs. He also claimed that buyers have seen the benefit from the stamp duty holiday 'the last time it happened.'

However, in terms of making homes more affordable, the Chancellor pointed to the mortgage guarantee scheme as the solution. Yet, while a 95 per cent deposit might sound enticing, Martin Lewis has previously warned about the dangers of opting for a low-deposit mortgage.

Should you go for a low-deposit mortgage?

Lewis has advised in the past – and repeated his advice again in his most recent programme – that 95-per-cent mortgages are rarely a good deal for the borrower. He has said that even saving for a 10-per-cent deposit is more beneficial than taking advantage of low-deposit schemes.

Paula Higgins comments: 'We know from the previous mortgage guarantee schemes that these mortgages weren’t cheap so it’s essential that people shop around.'

'Buyers may be able to get significantly cheaper deals if they can save a 10-per-cent deposit', she concludes.

Related: Chancellor announces the return of 95 per cent mortgages - everything you need to know

Ultimately, neither the stamp duty holiday extension nor the mortgage guarantee scheme solves the housing affordability problem – rather, these are temporary measures to support the housing market that could've suffered as the result of the pandemic.