Asking prices are now 5.6% higher than a year ago, down from annual growth of 6.3% in 2021, data from the property website revealed.

House prices are now down by an average £7,862 to £359,137, as “sellers adjust their expectations”.

The cost of living combined with higher mortgage costs means some buyers have paused their plans, Rightmove said.

However, buyer demand over the past two weeks is up 4% on the same period in 2019.

Rightmove has now forecast prices will by drop by an average 2% in 2023 as the market settles into a pattern seen prior to the pandemic, while affordability constraints hit some buyers.

Rightmove: ‘An understandable short-term reaction’

Tim Bannister, Rightmove’s director of property science, said: “Though we would always expect prices to drop in December, as motivated sellers try to capture the attention of a buyer before Christmas with a competitive price, this monthly dip is the largest we’ve seen for four years.

 “It‘s an understandable short-term reaction to the economic turmoil and unexpectedly rapid mortgage rate rises and reduction in availability of mortgage products that we saw in late September and October, before things began to settle down.

“Our data suggests there are many ready-to-go movers out there waiting for what they feel to be the right time to enter the market in 2023.

“We’d usually see a jump in home-mover activity in January, but it takes a while at the start of the year for any significant price changes to feed through, so we’ll be waiting for a potential bounce back in prices in February, which will be a very important leading indicator for the spring moving season.”

A price correction after years of growth

Simon McCulloch, chief commercial & growth officer at Smoove, also noted that uncertainty was holding back the market and that there was yet to be a full recovery from the ill-fated mini Budget back in October.

He said: “Higher borrowing cost has squeezed prospective home buyers as the Bank of England contends with forty-year high inflation. Compounded with the rising cost of living, particularly as the colder winter weather sets in, and wider economic uncertainty, people will understandably be delaying new purchases for the time being.

“The market is also yet to fully recover from the impact of the ex-Chancellor, Kwasi Kwarteng’s, mini Budget, with many buyers and sellers choosing caution until the market has fully stabilised.”

He added the figures could signal a correction in house prices after the rocketing prices seen in the past decade.

McCulloch said: “While these figures are disappointing, we must consider that the challenging economic conditions influencing the housing market affect almost all sections of the British economy. The winter months are also, historically, a slow period for the housing market as buyers wind down their search before Christmas.

“Taking a longer view, these latest figures could signal the start of a normalisation period, following the surge in UK house prices seen in recent years. Looking forward, we anticipate further easing in prices with the Bank of England expected to announce a further rate increase later this week.”