The Halifax House Price Index showed that this was a steeper decline than the 0.1% fall recorded in November. The annual rate of house price growth also slowed, down from 0.6% in November to 0.3% in December.
On a quarterly basis, average house prices were just 0.2% higher.
Amanda Bryden, head of mortgages at Halifax, said: “While this may feel like a subdued close to the housing market in 2025, overall activity levels were resilient over the last year and broadly in line with the pre-pandemic average.
“Various forces are poised to somewhat buoy the market heading into 2026. While December’s monthly fall in prices was likely related to uncertainty in the latter part of the year, this should now be starting to unwind. Further, mortgage rates are already reducing following the latest base rate cut and there are an increasing number of lending options available for those borrowing at a higher loan to value.”
She added: “While affordability pressures persist, the house price to income ratio was at its lowest in over a decade in December, striking a positive note for those looking to purchase their first home.
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“On this basis, and recognising the headwinds that may affect buying power – such as the slowing of wage inflation and flattening employment rates – we expect a modest rise in house prices during the year of between 1% and 3%.”
Regional and national differences
Northern Ireland continued to be the strongest performing nation or region in the UK with regards to house price growth, with a 7.5% year-on-year surge to £221,062.
This was followed by Scotland, where house prices rose by 3.9% to £217,775 and Wales, which recorded a growth of 1.6% to £230,233.
Within England, the North East had the strongest growth, recording a 3.5% annual rise to £181,798. This was followed by the North West, where property prices rose by 2.8% to an average of £245,323.
In London, house prices dropped by 1.3% over the year, ending at an average of £539,086.
A slower housing market makes way for competitive rates
Karen Noye, mortgage expert at Quilter, said the slower-moving market had “important implications for mortgage pricing”.
She added: “With fewer borrowers coming through the door, lenders are likely to compete more aggressively for business, particularly among lower-risk borrowers.
“That competitive pressure should help keep mortgage rates edging lower over time, even if any improvements are gradual rather than dramatic.”
Mark Harris, chief executive of SPF Private Clients, added that with markets expecting up to three more base rate reductions this year, “the rock-bottom rates of the past may be long gone but pricing is becoming increasingly palatable to borrowers, which should boost activity”.
Gareth Lewis, deputy CEO of MT Finance, said: “A flatter property market in terms of values is better for all concerned.”
He added: “While the interest rate environment is more positive, with sentiment pointing towards further cuts this year and lenders keen to offer attractive mortgage rates, it doesn’t take away from the fact that wages aren’t rising quickly enough to combat the higher cost of living.
“You can only buy what you can afford so flatter prices can only be considered a good thing. However, a non-rampant housing market is not enough to provide impetus when it comes to encouraging buyers and sellers to transact. The government must do its bit and encourage more transactions through stimulus for first-time buyers, perhaps in the form of a resurrected Help to Buy scheme.”
