House prices rose by just three per cent during 2005 with increases failing to make it into double digits for the first time in five years, new figures have revealed.

The growth was well down on the 12.7 per cent by which property prices soared during 2004, according to Nationwide Building Society.

The group said that during the past 12 months the average home in the UK had seen its value rise by just over £4,500 to £157,250, roughly the same level that house prices were at in May this year.

It said this gain was the equivalent of prices rising by £13 a day during the year, well down on the average rise of £47 a day seen during the previous 12 months.

Despite the subdued year, the market ended 2005 on a stronger footing, with prices ahead by 0.5 per cent during December, boosting house price growth during the last quarter of 2005 to 1.3 per cent.

The December rise compared with a 0.3 per cent increase in November.

Fionnuala Earley, Nation-wide's group economist, said that compared with 0.8 per cent in the same period last year.

"But the rate of growth is still modest by the standards of the past five years, when three monthly growth rates of more than twice this rate were normal."

She said 2005 was the first time in five years that house price inflation had ended the year in single digits. It was also the first time this century that equity prices had outperformed house prices, with the FTSE 100 Index rising by 16 per cent during the year.

Nationwide said it expected the Bank of England's Monetary Policy Committee to cut interest rates early next year.

But despite this and the boost August's interest rate cut gave to the market, the group predicted house prices would remain broadly stable and rise by between zero per cent and three per cent during 2006.

Ms Earley said: "A cut in interest rates will clearly be favourable for the housing market but we do not expect a cut to cause annual house price inflation to accelerate back up to levels seen in early 2005.

"Broadly favourable economic conditions, combined with the ongoing imbalance between the demand for housing and the rate of new build, mean that there is a supportive environment for prices.

"But affordability, particularly for first-time buyers, remains a significant obstacle."

Economists said the market was unlikely to tolerate any rises beyond three per cent in 2006, with affordability remaining a key constraint for many buyers. "If house prices start to accelerate markedly, we believe buyer interest will diminish, thereby keeping a lid on prices," said Howard Archer, economist at Global Insight.