The average home was worth £251,968 at the start of 2021 marking a 0.3 per cent fall from December, according to data from Halifax.
The results from the Halifax index are remarkably similar to those from Nationwide’s index earlier this week, suggesting the trend is being well recognised.
January’s monthly drop in values reported by Halifax is the largest since April last year, taking the average home price to levels last seen in October.
But on an annual basis, house prices were 5.4 higher and were also 1.6 per cent above the preceding three months to the end of October.
It means average prices are still £13,000 higher than a year ago.
‘Running out of steam’
The housing market has been booming since last summer but there are fears the end of the stamp duty holiday in March could derail the recovery out of last year’s lockdown.
Russell Galley, managing director at the lender, said: “There are some early signs that the upturn in the housing market could be running out of steam, with the annual rate of house price inflation cooling to its lowest level since August.
“Industry figures for agreed sales remain well above pre-pandemic levels but new instructions to sell have decreased noticeably, and total stock held by estate agents has risen to its highest level since before the EU referendum in 2016.
“The stamp duty holiday has undoubtedly helped to fuel growing demand among households for larger properties. However, given the current time to completion across the market, transactions in the early part of 2021 probably don’t include many borrowers who expect to benefit from the stamp duty reprieve.
“How far and how deep any slowdown proves to be is a challenge to predict given the prevailing uncertainty created by the pandemic.”
Sarah Coles, personal finance analyst at Hargreaves Lansdown added: “A winter chill blew through the housing market during January, cooling the market and raising the risk of cold feet.
“A new lockdown, combined with growing concerns for the future, and the looming stamp duty holiday deadline, are making buyers think twice before throwing themselves into a house purchase.
“This was always going to happen as we neared the cliff edge when the stamp duty holiday ends.
She added that those who have already committed to a purchase may decide to power on regardless, the situation was clearly putting people off getting started, although there could be some respite if the chancellor decides to tinker with stamp duty.
“MPs this week called for some sort of phased withdrawal, or assistance for people who are already in the middle of a purchase, and if the government decides to provide some sort of gentle ramp off the cliff edge, it could help enthuse new buyers again,” she said.