The house price index for the month showed this annual growth was lower than the 2.8% increase seen in November. Compared to the previous month, average house prices were 0.7% lower.
Northern Ireland had the strongest annual growth among all the nations, with a 7.5% rise to £195,936 in the year to Q4.
In Wales, values increased by 5% to £214,883, while Scotland recorded a 4.9% jump to £190,649.
England saw the lowest year-on-year rise, with house prices going up by just 1.7% to £291,865.
On a monthly basis, house prices in England were 0.7% lower and were 1.7% down in Scotland, whereas Northern Ireland saw a monthly growth of 1.4% and Wales recorded an increase of 2.6%.
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Roger Morris, group distribution director at Chetwood Bank for ModaMortgages and CHL Mortgages, said the figures reflected the aftermath of the Autumn Budget and the typical pre-Christmas slowdown.
He added: “In that environment, a modest monthly dip is not surprising, particularly with annual growth remaining in positive territory.
“December captured a period of continued hesitation. While expectations were building around the rate cut that was indeed delivered just before Christmas – and the potential for further easing in the new year – many buyers and investors were still weighing affordability and policy shifts before committing. And this has carried on into the new year, although there is certainly a more positive sentiment across the property market than there was this time last year, with conditions generally becoming more favourable for buyers.”
Tomer Aboody, director of MT Finance, said: “While we are still seeing a slight increase in average house prices, the market still needs a rocket to boost it and push it forward.
“The housing market in the UK will always maintain a certain level of activity due to demand outweighing supply, but to improve confidence and see some significant growth, we need a friendly government who will look to help the market either by easing off on stamp duty, helping investors by reducing the tax on rental income or via the Bank of England reducing interest rates further.”
Northern regions see strongest performance within England
The North East and North West recorded the strongest annual rises in average house prices, increasing 4.6% to £165,257 and 4.5% to £217,428 respectively.
Compared to the previous month, values in the North East fell by 1.4% and values in the North West dropped by 0.4%.
London was the only English region where house prices declined over the year, with a 1% annual drop to £551,294. Compared to the previous month, values were down by 0.8%.
Still, London had the highest average property prices.
Annual house price growth was flat in the South East, with values coming to £378,800, while on a monthly basis, this represented a 0.7% fall.
The South West saw the steepest monthly price decline, at 1.7% to £301,226. Annually, house prices in the region rose by 0.3%.
The East Midlands recorded the highest monthly increase of 0.4% to an average of £243,632, while annually, values were 2.4% higher.
Flat prices fall
Flats and maisonettes were the only property types to see an annual fall in average prices, dropping by 0.5% to £192,826 in December.
Detached homes rose by 1.6% in value to £440,564, while terraced homes were 3.6% higher at £229,449.
Semi-detached homes saw the largest rise of 3.9% to £275,313.
The cost of a new-build property surged by 9.5% annually in December to £364,459. This was also a 2.5% rise on the previous month.
Meanwhile, the average price of a resold property rose by just 1.5% to £265,784, which was also a 0.3% monthly fall.
Former owner-occupiers saw average house prices come to £331,925, 2% higher than the last year and 0.7% less than the preceding month.
First-time buyers paid £228,218 for their homes on average, 0.6% less than the previous month and 2.4% more than the year before.
Coventry Building Society said this rise showed how hard it was getting for first-time buyers to get on the housing ladder and the risk of breaching the stamp duty threshold was becoming more likely.
Jonathan Stinton, head of intermediary relationships at Coventry Building Society, said: “The bottom rung of the housing ladder continues to rise – and for first-time buyers, that makes an already difficult starting point feel even further away.
“One of the biggest pressures is the limited supply of suitable starter homes. There simply aren’t enough smaller, more affordable properties coming onto the market, which means buyers are competing for a very narrow pool of options.
“When demand is concentrated on such limited availability, prices naturally get pushed higher. It leaves many first-time buyers feeling as though the step they were aiming for has moved just beyond their reach, no matter how carefully they’ve planned or saved.”
