Housing market activity could be boosted after the “nil rate” stamp duty band was doubled from £125,000 to £250,000.
But more demand could also mean higher house prices, unless there is a significant increase in the supply of homes, experts said.
Around 200,000 more people every year will be lifted out of paying stamp duty, the Government calculated.
A typical family moving into a semi-detached property will save £2,500 on stamp duty, it said.
First-time buyers, who already paid no stamp duty on the first £300,000 of the price of a property, will see the threshold raised to £425,000.
The value of the property on which first-time buyers can claim relief has also been increased, from £500,000 to £625,000.
Stamp duty applies in England and Northern Ireland, with separate property tax schemes run in Scotland and Wales.
Announcing the measures, Chancellor Kwasi Kwarteng said the cut to stamp duty would be permanent and effective from Friday.
Soaring house prices and rising mortgage rates mean people trying to move on to or up the housing ladder face mounting costs.
There is also the hurdle of raising a deposit. According to property website Rightmove, first-time buyers typically face finding £22,409 for a 10% deposit on a home, up from £14,135 a decade ago.
The announcement was made in the same week that the Bank of England increased the base rate from 1.75% to 2.25% – the highest level since November 2008.
The move will add around £49 per month to the average tracker mortgage, according to figures from trade association UK Finance.
A previous stamp duty holiday, introduced by former chancellor Rishi Sunak, ended last year. During the holiday there were spikes in house sales as the holiday was phased out and house prices hit a string of record highs.
Andrew Montlake, managing director of mortgage brokers Coreco said: “The stamp duty change announced is mercifully effective today and a permanent change, rather than an unwanted holiday period that causes more issues than it solves.
“This will indeed help many first-time buyers who have agreed prices now, but we need to be careful that, as usually happens, house prices don’t simply rise further to eat up any potential savings and push homes out of reach for many more, especially at a time of higher interest rates.”
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown said: “Higher mortgage rates and higher property prices form a toxic cocktail, that risks killing off demand. For buyers facing forking out thousands of pounds right now (the stamp duty cut is) a welcome change.
“However, there’s every chance that the change doesn’t drain the toxic cocktail, it just remixes it.”
She added: “A shortage of buyers isn’t the biggest problem facing the property market right now, the real brake on the property market is a severe shortage of supply.”
The Chancellor also announced that he will support homebuyers by increasing the disposal of surplus government land to build new homes, increasing supply.
Under the Government’s plans, new “investment zones” will bring business investment and release land for new homes.
Brian Murphy, head of lending at Mortgage Advice Bureau, said: “It hasn’t been long since we last had a stamp duty break, and these things tend to generate momentum that causes a flurry of activity followed by a period of slowdown.
“However, the permanency of today’s announcement may temper a sudden surge of activity and allow some control of the UK property market to be regained.
“Still, the crux of the issue is that any changes in stamp duty will not address the main problem right now: a significant supply shortage.”
Rachael Griffin, tax and financial planning expert at Quilter said: “We only need to look back a matter of months to see what a transformational impact stamp duty holiday has on the market.
“However, more demand also means higher prices unless more stock is built and this will spell bad news for many.”
Ben Merritt, director of mortgages at Yorkshire Building Society, said: “Instead of focusing solely on tax cuts, it’s crucial we look at finding other solutions specifically for downsizers – those looking to move into smaller properties – to try and stimulate a stunted market.
“Recent research we conducted shows that a fifth (19%) of homeowners looking to downsize see stamp duty as a barrier to moving, but almost a quarter (23%) say it’s the insufficient supply of appropriate housing that stops them from moving.”
Lucian Cook, head of residential research at Savills, said: “The biggest beneficiaries of the stamp duty changes are likely to be first-time buyers in London and the more expensive parts of South East England, where the savings on offer will make their deposit requirements look a little less daunting.
“However, given a combination of recent house price growth and increases in interest rate raises this is not going to magically result in a surge of first-time buyer home buying activity.
“Similarly, a maximum up front stamp duty saving of £2,500 for other buyers, is relatively small in relation to the additional annual mortgage costs seen since the beginning of the year.
“And as the cut is permanent it is unlikely to bring the same urgency to the market as the recent stamp duty holiday.”
Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors (Rics) said: “We would have liked to have seen extra help not just for first-time buyers but to encourage energy-efficient properties and more investment on cutting energy use.”
Nick Sanderson, chief executive of retirement villages company Audley Group, said: “A stamp duty cut is a tried and tested way to get the housing market moving.
“But it is a short-term fix for a housing market that has major flaws.”
Jason Tebb, chief executive officer of property search website OnTheMarket.com said: “First-time buyers are the lifeblood of the housing market so targeting them in particular with assistance that will help them onto the ladder is particularly welcome.”