Annual growth in house prices slowed for the second month running in December, government figures released yesterday showed.
The annualised rate of inflation fell to 9.1 per cent from a revised figure of 9.7 per cent in November, according to data from the Department of Communities and Local Government (DCLG). November's annualised rate of inflation was originally calculated at 9.5 per cent.
Yesterday's figures were seen as further proof that the residential property market is now undergoing a correction after years of soaring values.
Global Insight economist Howard Archer said the figures "reinforce the general view that house prices are currently cooling markedly - but not collapsing - in the face of increased affordability pressures and tightening lending practices".
He added: "We expect these factors to continue to bite over the coming months."
Despite the fall in the annual rate of inflation, yesterday's DCLG figures showed that on a on a month by month basis, the price of an an average house in the UK rose by 0.4 per cent to £219,591 in December compared with £218,662 in November, which was revised up from £218,330.
The December rise was driven by increases for detached houses (one per cent), terraced houses (0.6 per cent), flats (0.5 per cent) and semi-detached houses (0.2 per cent). The price of the average bungalow fell by 2.3 per cent. In London, annual house-price inflation was 13.5 per cent, down from 14.5 per cent. November's growth rate was also revised up from 14.1 per cent.
The Government data is based on completed property sales and lags behind surveys from industry groups like the Nationwide and Halifax.
Nationwide's most recent survey actually revealed that house prices fell for the second month running in December but Halifax's showed a rebound during the same period.
Since then, however, Halifax's survey has shown that growth in house prices was unchanged in January.
The DCLG figures showed that the West Midlands, at four per cent, saw one of the lowest rates of annual house price inflation in December. The average price of a house in the region in December was £181,413 compared with £181,115 the previous month and £175,415 at the start of 2007.
London had the highest average price in December (340,631) and the North East the lowest (£151,085).
There was a crumb of comfort in yesterday's figures for first-time buyers, however.
They faced having to pay 9.5 per cent more for their first homes in December than they would in the same month in 2006 compared with 9.8 per cent more in November. The average price paid for first-time buyers across the whole of the UK in December was £166,734 while the average price paid by existing homeowners who moved or traded up was £245,522.
Ed Stansfield, property economist at Capital Economics, said the data confirmed the market cooled "sharply" in the last months of 2007.
He said: "Over the previous five Decembers, prices have risen by an average of more than one per cent month on month.
"The annual inflation rate fell to 9.1 per cent in December, down from 12.4 per cent in the summer.
"Thus the data simply confirms that the market cooled sharply in the final months of last year."
Mr Stansfield said last week's quarter-point interest rate cut from the Bank of England - which cut base rate to 5.25 per cent - would not have a marked impact on market confidence as not all mortgage products would be cheaper due to scarcity of funds.