Annual house price inflation slowed to 2.8% in December, a sharp fall from 4.4% in November, according to the latest Nationwide House Price Index.

Prices also fell by 0.1% on a month-by-month basis in December, although this was a much smaller decline than in the previous couple of months.

However, Nationwide’s data highlighted that December still marked the fourth consecutive monthly price fall, the worst run since 2008, which left prices 2.5% lower than their August peak, after taking account of seasonal effects.

While financial market conditions have settled, Nationwide suggested that mortgage rates are taking longer to normalise while housing market activity has also shown few signs of recovery.

“It will be hard for the market to regain much momentum in the near term as economic headwinds strengthen, with real earnings set to fall further and the labour market widely projected to weaken as the economy shrinks,” said chief economist at Nationwide, Robert Gardner.

“The recent weakness in mortgage applications may, in part, represent an early seasonal slowdown. With the chaotic backdrop and elevated mortgage rates in recent months, it wouldn’t be surprising if potential buyers have opted to wait until the new year to see how mortgage rates evolve before deciding to step into the market.

“Longer-term interest rates, which underpin mortgage pricing, have returned towards the levels prevailing before the mini-Budget. If sustained, this should feed through to mortgage rates and help improve the affordability position for potential buyers, as will solid rates of income growth.

“But the main factor that would help achieve a relatively soft landing is if forced selling can be avoided, and there are good reasons to be optimistic on that front. Most forecasters expect the unemployment rate to rise towards 5% in the years ahead – a significant increase, but this would still be low by historic standards.

“Moreover, household balance sheets remain in good shape with significant protection from higher borrowing costs, at least for a period, with around 85% of mortgage balances on fixed interest rates.”

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