The Office of the Deputy Prime Minister said that the price of the average home fell to £178,906 from £180,126 in November,

The drop, the third in four months, reflected a 1.3 per cent drop in the value of detached homes. The prices of flats fell by 0.8 per cent and terraced houses by 0.6 per cent.

The rate of annual inflation in property values, a figure including the strong growth reported last spring, fell to 10.7 per cent from 13.7 per cent in November.

In London, the growth rate more than halved from 7.0 per cent to 3.0 per cent. The North East remained the most buoyant region, with prices growing by 20.5 per cent, while the value of Yorkshire and Humber properties grew by 18.8 per cent.

The data prompted City forecasts that further drops in house values lay ahead.

"Further price softness seems likely in the near term at least," Howard Archer, the Global Insight economist, said.

George Buckley, at Deutsche Bank, said: "Since [ODPM house price data] was first published at the start of 2002 this is the first December fall that we have witnessed.

"We expect a further weakening in this series going forward in line with the softening in some of the other house price surveys."

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