House prices increased by over £24,500 in 2021, the largest annual cash rise since March 2003, but Halifax said this growth is likely to slow over the next year.
At 1.1%, the monthly rate of changed remained in line with November, but saw a slight drop from the 1.7% high seen month-on-month in September.
With only a slight dip of 0.6% in June, 2021 saw UK average house prices increase every month.
Wales remained the strongest performing nation or region, with annual price inflation of 14.5%, taking the average house price to £205,579.
However, this was a slight decrease from the 14.8% rise recorded in Wales in November.
Northern Ireland was also one of the strongest performing regions, recording annual growth of 10.6%, and an average house price of £170,946.
House prices also continued to rise in Scotland, with the average property up 9.7% year-on-year, and the average price standing at £192,988 in December 2021, the most expensive on record.
In England, the North West was the strongest performing region (11.8%), followed by the South West (11.0%).
Despite registering a strong quarterly rise in prices (2.9%), up from 1.1% in November, London was still the weakest performing for annual inflation (2.1%).
Russell Galley, managing director at Halifax, said: “The housing market defied expectations in 2021, with quarterly growth reaching 3.5% in December, a level not seen since November 2006.
“In 2021 we saw the average house price reach new record highs on eight occasions, despite the UK being subject to ‘lockdown’ for much of the first six months of the year.
“The lack of spending opportunities afforded to people while restrictions were in place helped boost household cash reserves.
“This factor, alongside the stamp duty holiday and the race for space as a result of home working, will have encouraged buyers to bring forward home purchases that may have been planned for this year.
“The extension of the government’s job and income support schemes also supported the labour market, and may have given some households the confidence to proceed with purchases.
“A lack of available homes for sale, and historically low mortgage rates, have also helped drive annual house price inflation to 9.8%, its highest level since July 2007.
“Looking ahead, the prospect that interest rates may rise further this year to tackle rising inflation, and increasing pressures on household budgets, suggests house price growth will slow considerably.
“Our expectation is that house prices will maintain their current strong levels but that growth relative to the last two years will be at a slower pace.
“However, there are many variables which could push house prices either way, depending on how the pandemic continues to impact the economic environment.”
Chris Hutchinson, CEO of Canopy, said: “A new year has begun with a similar story to the last, as house prices continue to rise.
“While there are still attractive low-deposit deals for first-time buyers, the increasing cost of living is causing ever more difficulty for potential homeowners to raise the funds necessary for a deposit and be in a strong position to pass the required affordability checks for a mortgage.
“Encouraging positive financial habits should be of paramount importance to the government and the housing industry from the moment people begin their renting journey.
“With competition in the market so high, having an edge will prove to be key for potential homeowners when looking to secure an affordable mortgage, therefore, building a strong credit score and financial resilience should be at the top of the list for all whose end goal is homeownership.”
Karen Noye, mortgage expert at Quilter, added: “The 2021 property market was somewhat of a whirlwind, with prices consistently being pushed higher due to the stamp duty holiday, a race for space driven by home working and demand outweighing supply.
“While a continued rise in house prices in December is perhaps not what many will have been hoping for, we may finally see growth slow in 2022.
“With the Bank of England’s interest rate rise firmly in place, and with further increases hotly anticipated, we may finally see a slowdown in surging prices.
“Alongside the highly inflated housing market, mortgage rates have been pushed up and we will likely see further rises if the BoE increases rates again as expected.
“While there appear to be some positive signs in terms of the impact of the Omicron variant, it serves as a reminder of the uncertainty we still face in this pandemic.
“Increased mortgage costs and the threat of possible future restrictions may put homebuyers off, and we could see a break in house price growth as a result.
“However, as demand seemingly continues to outweigh supply, any fall in price growth is likely to be gradual.”
Gareth Lewis, commercial director of property lender MT Finance, said: “Prices are still increasing but transactional flow has slowed a little, along with price growth.
“It will be interesting to see the housing market return to a level of normality over the next few months, without the government stimulation in the form of the stamp duty holiday which fuelled much of last year’s activity.
“Business has been buoyant as we start the year, with plenty of enquiries coming through.
“January can be quite a slow month as people gradually get back to work and find their feet but there are still motivated buyers who didn’t transact last year and are keen to do so, particularly before interest rates rise further.”
