"When taken with the recent fall in transactions it is clear that the increase has more to do with a shortage of stock rather than a bounce back in the market."
This is up from the 0.3% annual growth rate recorded in November. On a monthly basis, house prices increased by 2.2% in December, following a 1.2% fall in November.
Halifax expects an increase in house price growth in 2019 of between 2% and 4%.
Russell Galley, managing director at Halifax, said: “A stronger monthly growth figure for December improved from a weaker November. Overall, house price growth in 2018 was very much within the range of 0-3% as we forecast at the start of the year.
"In 2019, we’re expecting continued stability in house prices with between 2% and 4% price inflation. This is slightly stronger than 2018, but still fairly subdued by modern comparison. However, this expectation will clearly be dependent on the Brexit outcome, with risks to both sides of our forecast.
"Of course, there are a number of other factors that will impact the market in 2019. The need to raise a significant deposit still acts as a restraint for those looking to buy a new home, limiting the number of potential purchasers.
"This year, mortgage payment affordability is more difficult to predict. There are competing pressures with signs of positive annual pay growth supporting affordability, but risks associated with the potential for higher interest rates are pulling in the other direction. On balance we do not see affordability pushing house price growth significantly in either direction.
"The shortage of homes for sale and continuing low levels of housebuilding both constrain the supply of houses, and in turn support high prices, which will continue to inhibit demand in 2019.”
Jeremy Leaf, north London estate agent and former RICS residential chairman, commented: "At first glance the Halifax numbers are really positive as they reflect a time of particular political uncertainty and the height of Brexit turmoil. But when taken with the recent fall in transactions it is clear that the increase has more to do with a shortage of stock rather than a bounce back in the market generally.
"On the ground, the market remains tentative and the sales which are agreed are taking much longer than previously, which is only heightening indecision.
"This year has begun more positively than we had dared anticipate after so many negative predictions. But clearly it remains to be seen whether those early good viewings and valuation numbers translate into good offers and more realistically priced listings."
