On a monthly basis, prices rose 1.2% between November and December, figures from the Land Registry House Price Index show.
London saw a significantly higher annual increase than other regions at 12.4%. The average price in the capital now stands at £514,100.
London again topped the chart of month-on-month increases, with prices rising 2.1%.
The North East saw the smallest yearly increase at 0.8%. Wales saw the most significant monthly decrease, also at 0.8%.
Adrian Whittaker, sales director at New Street Mortgages, said: “These unseasonal increases in house prices over the Christmas period characterise a market where limited supply and rising demand is making the race to buy a property more and more competitive.”
Stephen Smith, director of Legal & General Housing Partnerships, said the gulf between supply and demand continues to drive up competition for homes, pushing up asking prices.
However, while prices have gone up, transactions fell from 84,517 in July to October 2014, to 80,691 for the same period last year.
Repossessions are also seeing a downward trend, falling from 848 per month between July and October in 2014, to 443 per month in the same period 2015.
The number of properties sold in England and Wales worth over £1m decreased by 2% year-on-year from 1,258 in October 2014 to 1,231 last year. The capital also saw a 2% drop in premium housing sales volumes, with transactions falling from 771 to 752.
Nick Leeming, chairman at Jackson-Stops & Staff, said the figures showed the higher levels of Stamp Duty Land Tax (SDLT) are continuing to affect the high end of the market.
He said many people have been deterred from selling up and moving due to the costs, which impact mid-market owners as the number of step-up homes available has fallen. He said first-time buyers, aided by low interest rates and policies like Help to Buy has stifled the market.
However, Smith said many first-time buyers are being pushed out of the housing market altogether due to house price inflation and a shortage of housing.
“This lack of housing supply must be addressed before the situation is allowed to deteriorate further. In order to meet demand, the Government should help existing homeowners to rightsize by committing to building 250,000 homes per year. This will, in turn, create a more fluid housing market and encourage more efficient use of current housing stock.”
