Experts predict house prices will climb by 3% this year, even with the upcoming budget expected to bring financial challenges.

Despite Prime Minister Keir Starmer warning of a “painful” budget looming, property expert Tom Brill, head of UK residential research at Knight Frank, believes the housing market remains strong. While the Prime Minister has hinted at tax rises to address a £22 billion gap in public finances, recent data suggests the economy is not in dire straits.

Brill highlights several positive indicators:

• House prices remain resilient: Despite a slight dip in August (down 0.2% to an average of £265,375), Nationwide Building Society reports that prices are still up 2.4% compared to August 2022.
• Mortgage approvals surge: The Bank of England reports that mortgage approvals for new home purchases have reached a two-year high, with a 2.3% increase in July, totalling 62,000.
• Property sales on the rise: Data from HM Revenue & Customs reveals a 7% jump in residential property sales in July compared to last year, reaching 90,630 transactions.

Adding further weight to this positive outlook, Brill points to the FTSE 100 nearing its all-time high and business confidence soaring to an eight-year peak in July, as reported by Lloyds Bank.

However, Brill acknowledges that talk of a tough budget could create uncertainty among buyers and sellers. This uncertainty is already impacting the higher end of the market, with sales of homes over £2 million seeing a 12% decrease in July (Knight Frank data). This dip is likely fueled by concerns over potential changes to capital gains tax, inheritance tax, and other tax implications for high-net-worth individuals.

This presents a dilemma for the government, as while sales of properties over £2 million only accounted for 6% of total transactions, they generated a substantial 22% (£11.7 billion) of stamp duty revenue in the year leading up to March 2023. Brill cautions the government to proceed with caution on tax changes to avoid unintended consequences for the housing market and public finances.