I recommend a slightly different approach.
A 1/4" hole is overkill and too large for the latigo leather you may be able to find locally. Don't punch the hole until you see what you have for leather.
Also, punching it about 1/2" below the top of the top of the holster is fine, but you'll want a second hole slightly below that one as well.
What you'll want to do is:
1) get the aforementioned 12" long by maybe 3/16" wide and 1/8" thick leather strip,
2) cut the ends at along shallow angle to create points that you can more easily poke and then pull through a small hole that will hold the thong securely,
3) adjust the length of the loop so it just barely slides over the hammer, creating a secure loop that can be pushed back up off the hammer with your thumb, but one that is also not overly loose,
4) take the ends of the thing and then poke/pull them back out of the holster through a second hole 3/8" to 1/2" below the first one, then take the running ends of the loop and secure them under the flap or loop on the holster.
You can make the holes slightly off center on the inside (body side) of the holster so they are not visible. The two hole approach also avoids having to rely on a knot to secure the thong and makes it much easier to adjust the length. Plus, unless it's a very loose fitting holster, there is not much room for a knot inside the holster and even if there is, it just creates a high spot to rub on the top strap and/or cylinder. If you really want to keep the ends inside the holster, then just do a third hole to route them back inside. Done evenly and in a straight line, it looks like a couple stitches.
If you look closely here, you'll see two thin, pointed leather pieces sticking out between the holster and flap at the muzzle, in between the leg ties. That's the far ends of the leather hammer loop. You can trim them shorter if you want.
I won't be home until Thursday night, but I can post pictures of the loop and holes on Friday if you need them to clarify what's been done.